KZT/USD Exchange Rate

The KZT/USD exchange rate is an important indicator of the country’s economic stability, affecting the prices of goods and services and the inflation rate. In recent years, the Tenge has demonstrated significant fluctuations against USD. Thus, over the last six months, the average monthly USD/KZT exchange rate increased by 8.2%, signifying the Tenge depreciation.

Analysts are predicting further gradual weakening of the Tenge in the years ahead. According to BCC Invest’s baseline scenario, by the end of 2025, the exchange rate will reach 533.4 KZT per USD, while the average annual exchange rate is expected to be at the level of KZT 528.1 in 2025. The optimistic scenario assumes a slower weakening to 506.1 KZT per USD by December 2025, while the pessimistic scenario predicts a significant weakening to 561.9 KZT per USD.

The fundamental factors affecting the Tenge exchange rate are global oil prices, inflation rate, geopolitical landscape and domestic economic indicators. For population, a weaker Tenge means higher prices for imported goods and services, which could lead to higher inflation and reduced purchasing power. Therefore, it is important to monitor the exchange rate dynamics and take measures to protect your savings, for example, by diversifying them in different currencies or investment instruments. For example, by investing in BCC Invest mutual funds.

Current Environment Overview

Average Annual and Average Monthly KZT/USD Exchange Rate Dynamics

Since 2015, when Kazakhstan moved to a free-floating exchange rate regime, we have witnessed many changes that have affected both the national economy and people’s personal finances. The exchange rate is no longer just a number displayed on the exchange office boards, but a factor that determines our purchasing power, future plans and even our level of confidence about the future.

According to the National Bank, from the beginning of 2024 to 31 December 2024, the exchange rate weakened by 14.8% or by KZT 67.2, from 454.56 tenge to 521.81 KZT per USD. Deteriorating dynamics of the domestic currency Tenge against USD is shaped under the influence of multiple factors, which is associated with the country’s economic specifics being primarily focused on the export of raw materials and imports of finished products. This structure of foreign economic activity makes the Tenge sensitive to changes in global and domestic environment, which can be conditionally divided into external and internal factors.

External factors include, first of all, the US dollar index dynamics (DXY), which reflects the US currency’s strength on the global market. As a rule, strengthening of the Dollar puts pressure on the Tenge, especially amid tightening of the US Federal Reserve policy. The Brent crude oil prices also play a big role as Kazakhstan generates a significant portion of its revenues from exports of hydrocarbons. Lower oil prices directly reduce the country’s foreign exchange earnings, which weakens the Tenge. Geopolitical stability and secondary sanctions imposed on Kazakhstan’s partners create additional uncertainty and limit the country’s capabilities in terms of international transactions. Moreover, changes in global supply and demand for goods and services are an important external factor, which may either support the country’s foreign exchange earnings or, on the contrary, limit them.

rate include inflation expectations of the population and businesses. Rising inflationary expectations often lead to increased demand for foreign currency, which puts pressure on the Tenge. The National Bank’s base rate is a critical element, which determines the borrowing costs in the economy and affects the attractiveness of investments in KZT compared to foreign currency. Transactions in the foreign exchange market conducted by large state-owned entities, such as the National Fund, the Unified Accumulative Pension Fund and second-tier banks with state participation, also significantly affect the Tenge exchange rate, creating both additional currency inflows and outflows. Activities of the national companies, especially in the extractive sector, also play a role, as export volumes and sales of foreign currency revenue affect the supply of foreign currency in the domestic market.

When analyzing the data for the period from January 2015 to October 2024, the correlation matrix is used to determine the relationship between variables. Thus, a correlation between the annual growth rate of the exchange rate and changes in the base rate was 67.6%, indicating a high positive correlation. The correlation with the Brent crude oil price was -33.7%, indicating a moderate negative correlation. The correlation with the US dollar index amounted to 7.4%, which signifies a positive almost zero correlation.  At the same time, it should be realized that the correlation analysis is most often used for further regression analysis, which requires that the correlation coefficient tends towards zero.  In this way, analysts avoid the effect of multicollinearity.

Table 3. Correlation Analysis of Variables Dependence

International Trade Relations

Structure of the Country’s Foreign Trade Turnover for 9M 2024

According to foreign trade data of the National Statistics Bureau and the State Revenue Committee, the country’s trade turnover totaled US$104.3 billion for nine months of 2024, up 1.1% or USD 1.1 billion as compared to nine months of 2023. The PRC (21% of total trade turnover or $21.9 billion), the Russian Federation (18.7% or $19.5 billion) and Italy (15.4% or $16.0 billion) are leaders in the trade turnover. The country’s net exports remained positive and amounted to USD 18.4 billion, up 41.6% or USD 5.4 billion year on year.

At the same time, $33.9 billion or 32.5% of the total trade turnover was crude oil, where 44% or $14.9 billion worth of crude oil is exported to Italy, and 10.2% or $3.4 billion worth - to the Netherlands. Overall, Kazakhstan exports 83.8% or $28.4 billion worth of crude oil to the European countries. Chemical and radioactive elements, amounting to 3.3% of the total trade turnover or $3.4 billion, take the second place. And copper and its alloys rank third with 3.0% of the total trade turnover or $3.1 billion.

Despite the growth in trade volumes, the structure of Kazakhstan’s trade turnover raises serious concerns and risks regarding the economy’s resilience. Significant imbalances in trade turnover signify a very weak diversification of products. In turn, this makes the country vulnerable to external shocks, such as fluctuations in oil prices or changes in demand for energy resources in Europe.

Country’s Exports and Imports Structure by countries

According to foreign trade data of the National Statistics Bureau and the State Revenue Committee, for nine months of 2024, exports of goods totaled $61.4 billion, and imports amounted to $45.1 billion. Exports increased in nominal terms by US$3.3 billion or 5.6% as compared to nine months of 2023. Imports of goods in turn declined by US$2.1 billion or 4.8%. The country trades with 187 countries around the world.

The key trading partners of Kazakhstan are the EU, the Russian Federation and China, accounting for 72.6% of total imports and 76.4% of total exports this year. The EU is the main consumer of Kazakhstan’s exported products, while Russia is primarily the main supplier of the country’s imported products, and China is the major trading partner in both exports and imports.

For nine months of 2024, primary commodities accounted for 65.4% of total exports (US$40.1 billion), semi-finished or intermediate products accounted for 27.6% of total exports (US$17.0 billion), and finished goods or end-use products accounted for 7.0% of total exports (US$4.3 billion). This suggests that merchandise exports remain heavily dependent on primary commodities, while the low share of finished products indicate the need to further develop the non-resource sector and increase the added value of exported products to diversify the economy and improve its sustainability.

Finished goods accounted for 60.6% ($26 billion), semi-finished products accounted for 34.1% ($14.6 billion), and raw materials accounted for 5.3% ($2.3 billion) of all goods imported. That is, Kazakhstanis buy goods with high added value.

Purchasing Power of Tenge Against Trading Partners

REER Index Dynamics in Annual and Quarterly Averages

The REER is an important indicator showing the competitiveness of the nation’s economy in global markets. This indicator measures the value of the domestic currency relative to a basket of currencies of trading partners, subject to inflation differences. The EU, Russia, China and the US were taken for calculation, as they are the major trading partners for Kazakhstan.

According to the National Bank data, December 2013 is taken as a basis for the REER index, i.e., the REER equals to 100 in this period. The chart shows significant REER fluctuations over the period from 2015 to 2024. The peak value was recorded in 2015 at the level of 99.1, followed by a significant decline to 73.0 in 2016, indicating a sharp KZT devaluation and loss of its purchasing power.

Over the period from 2017 to 2022, the exchange rate gradually declined, stabilizing at levels around 73-78, which indicates that the currency has stabilized after the initial shock, but without significant improvements in term of its competitiveness.

In 2023, the REER value demonstrated a notable increase to 83.9, indicating that the Tenge strengthened, and its competitiveness improved amid the external economic factors. Fluctuations have been observed throughout 2023, with an increase to 86.3 in the 3Q and a slight decrease in the 4Q.

Data for 2024 shows the exchange rate appreciation trend, with an increase to 88.7 in the 2Q and a slight decline to 85.2 in the 3Q. This is due to the fiscal impulse directly or indirectly sponsored by public money. The current appreciation trend indicates that the nation’s competitive positions have improved, but further sustained appreciation requires support from domestic macroeconomic stability and could lead to continued interventions from the National Fund.

BCC Invest Analysts’ Expectations on Further Dynamics

Projected KZT/USD Exchange Rate Dynamics until the end of 2025

According to the estimation of analysts of BCC Invest Analytics and Research Department, a gradual weakening of the Tenge is expected in 2025, which is reflected in three forecasting scenarios: optimistic, baseline and pessimistic.

The baseline scenario assumes that the exchange rate will reach 533.4 KZT per USD by the end of 2025, with a gradual increase in the exchange rate during the year. The optimistic scenario assumes a slower weakening, and that by December 2025 the exchange rate will be 506.1 KZT per USD. The pessimistic scenario assumes a significant weakening of the Tenge, and that the exchange rate may reach 561.9 KZT per USD by the end of the year.

The key factors for KZT weakening in 2025 may be the continued inflation risks, decrease in export revenues in the context of possible deterioration of the global economic environment and weak compliance with the fiscal rule, which may lead to an increased transfers from the National Fund due to growing government expenditures, resulting in increased pressure on the domestic currency. Despite this, the baseline scenario predicts that measures of the National Bank’s monetary policy will help to partially limit weakening of the exchange rate, keeping it within the moderate growth.

Given the macroeconomic risks, economically active participants need to have a clear understanding of measures aimed at adapting their activities in the context of uncertain exchange rate volatility.