Plummeting Oil Prices and Trump's Tariffs Impact Tenge Fluctuations
Down Goes the Tenge: Pairing Plummeting Oil Prices with Global Market Turmoil
ASTANA — Experts say the recent slip in the tenge's exchange rate can be traced back to two main factors: dwindling oil prices and the ripple effects of the U.S. administration's tariff announcements.
{Collage courtesy of The Astana Times/ Fatima Kemelova)
Once Trump dropped the news about new tariffs, global economic markets have been whipped into a frenzy, rattling nerves and reviving concerns about a new age of protectionism and a possible worldwide recession. Amid this tumult, Kazakhstan faces a 27% duty on all goods imported from the States.
Although Kazakhstan's exports remain unaffected by the U.S. tariff measures in the immediate sense, ripples have swept through the Kazakh currency tenge.
On April 7, the tenge's exchange rate on the Kazakhstan Stock Exchange (KASE) was recorded at 519.12 tenge per U.S. dollar, weakening by 2.7% compared to the previous trading day. Over the week, the tenge weakened by 2.9%.
But Kazakh economist Galymzhan Aitkazin believes that the U.S. administration's decisions aren't solely responsible for the tenge's volatility.
"The tenge ain't winning any beauty contests," Aitkazin wrote in his Telegram channel. "It's more about the natural ebb and flow of a currency in a developing country, adversely affected by fundamental shocks."
According to him, the downward trend in oil prices reigns supreme as the determining factor behind the tenge's weakness.
"A barrel of Brent oil has dipped to a three-year low: it's selling for $63. The forecast looks grim: on April 3, eight OPEC+ countries agreed to boost production by 411,000 barrels a day, and Trump is pushing hard for increased domestic U.S. production," Aitkazin wrote. "That's another blow on top of Brent's fall."
"Until February 2022, the tenge's movement was largely influenced by Brent prices. Post-2022, the ruble exchange rate has joined the act, reflecting the close economic ties with Mother Russia," he added.
In their official missive, the National Bank of Kazakhstan cites several factors that influenced the tenge's exchange rate: a significant drop in investors' risk appetite, a downturn in the value of risky assets, declining major U.S. stock indices, and the plunge in oil prices.
"Over the week ending April 7, oil prices took a tumble of 14.1%, sinking below $65 per barrel—a four-year low. Further pressure on oil comes from the OPEC+ decision to expedite the removal of previously imposed production limits, as well as Saudi Arabia's announcement of slashing the price of all oil grades for Asian buyers by $2.3 a barrel—the steepest reduction since October 2022," reads the National Bank's report.
As oil prices plummet and global markets shake with unease, emerging currencies and commodities-based economies are struggling to stay afloat. Between March 31 and April 7, the emerging markets currency index dipped 1.8%, with South Africa's rand down 7.3%, Russia's ruble 3.8%, Brazil's real 3.5%, Indonesia's rupiah 1.5%, and Mexico's peso 1.1%.
The increased demand has also led to a spike in trading volumes, according to the National Bank. On April 7, KASE recorded over $456 million in operations, nearly double the average daily volume this year.
Despite the challenges, the National Bank swears off any foreign exchange market interventions, assuring that it is closely monitoring the turmoil and stands ready to intervene if needed to maintain a steady tenge exchange rate.
- The Kazakh economist, Galymzhan Aitkazin, attributing the volatility in the tenge's exchange rate to more than just the U.S. tariffs, stated that the natural ebb and flow of a currency in a developing country, coupled with fundamental shocks, is a major contributing factor.
- In the wake of plummeting oil prices and global market instability, the average trading volume on the Kazakhstan Stock Exchange (KASE) surged, reaching over $456 million on April 7, almost doubling the average daily volume this year.
- Amidst the ongoing sports-less period imposed due to the global pandemic, some Kazakhstan residents have turned to an odd form of competition to pass the time: exchanging their local tenge currency for foreign currencies, hoping to profit from the tenge's volatility and the potential devaluation of the currency.
