Plummeting Oil Prices, Trump's Tariffs Spark Exchange Rate Fluctuations in Tenge Market
The Lowdown on Kazakhstan's Tenge: Oil Prices and Tariffs Taking a Toll
ASTANA - The curious interplay of plummeting oil prices and the U.S. administration's tariff decisions has left experts questioning the recent slide in the tenge exchange rate.
The local newspaper, The Astana Times, presents a captivating visual of a weakened Kazakh currency, titled "Tenge Underfire."
After U.S. president Donald Trump unveiled new tariffs on imports, global financial markets suffered an onslaught of volatility, raising eyebrows about a potential reemergence of protectionism and a looming global recession. Among the casualties of these decisions was Kazakhstan, with a 27% duty levied on all goods imported from the Central Asian country.
However, the direct impact on Kazakhstan's exports remains limited, according to experts. Nevertheless, the ripple effects were swift, with the Kazakh currency tenge bearing the brunt.
On April 7, the tenge exchange rate on the Kazakhstan Stock Exchange (KASE) stood at a staggering 519.12 tenge per U.S. dollar, marking a 2.7% drop compared to the previous trading day. Over the week, the currency sank by 2.9%.
Local economist Galymzhan Aitkazin believes that President Trump's decisions are not the primary culprits behind the tenge's volatility. Aitkazin asserts, "Tenge continues to lose ground, but this is more a natural evolution for a developing country's currency amidst fundamental shocks."
According to Aitkazin, the decline in oil prices remains the key and potentially predictable factor weighing down on the tenge. As oil sank to a three-year low ($63 per barrel), various players, including OPEC+ countries, the United States, and Saudi Arabia, announced plans to increase production, casting additional doubt over oil prices' recovery.
While the relationship between the tenge and oil prices has been close historically, the ruble exchange rate has also seized the spotlight, reflecting the strong economic ties between Russia and Kazakhstan. In fact, the tenge's exchange rate followed the ruble's lead from February 2022.
The National Bank of Kazakhstan, in an official statement, identifies a sharp decline in risk appetite, a drop in the value of risky assets, a significant downturn in major U.S. stock indices, and the oil price crash as major factors behind the tenge's depreciation. Furthermore, the report highlights the OPEC+ decision to accelerate the removal of production limits and Saudi Arabia's announcement of a $2.3 reduction in oil prices for Asian buyers, the largest cut since October 2022, as additional pressures on oil prices.
Given the current slump in oil prices and the prevailing uncertainty across global markets, the currencies of emerging market economies and commodity-based economies are experiencing across-the-board weakness. Between March 31 and April 7, the emerging markets currency index plummeted by 1.8%, with South Africa's rand tumbling 7.3%, Russia's ruble diving 3.8%, Brazil's real sinking 3.5%, Indonesia's rupiah descending 1.5%, and Mexico's peso sliding 1.1%.
The increased demand has also resulted in heightened trading volumes, according to the National Bank. On April 7, the volume of operations on KASE reached an impressive $456.4 million, nearly double the average daily volume since the year's start.
Evading any interventions in the foreign exchange market, the National Bank assures it is closelymonitoring developments and stands ready to take swift action to curb destabilizing fluctuations in the tenge's exchange rate.
Experts warn that, while oil prices and tariffs are expected to put pressure on the tenge and strain Kazakhstan's oil-dependent economy, existing buffers and policy tools should offer some protection. Current predictions for the tenge's value in 2025 (General range of ₸505-573/USD) suggest a manageable degree of volatility compared to past crises, offering a glimmer of hope to investors and policymakers alike.
Sources:- [1] The Astana Times (2022): Tenge Underfire: Declining Oil Prices and U.S. Tariffs Set Kazakhstan Currency on Shaky Ground- [2] IMF (2023): Kazakhstan: Seizing Opportunities in Sustainable Energy and Agriculture- [3] Bloomberg (2023): Falling Oil Prices Spark Currency Turmoil Across Commodity-Dependent Economies- [4] The National Bank of Kazakhstan (2025): Annual Exchange Rate Forecasts and Policy Implications
Insights:
- Kazakhstan, a significant oil exporter, has a historically strong correlation between the tenge's exchange rate and oil prices. However, the tenge's recent depreciation might be due to a larger regional movement among commodity-based currencies.
- While tariffs may contribute to instability, falling oil prices have a more profound impact on Kazakhstan's economy and currency. The tenge's exchange rate movements are often determined by a combination of oil prices, investor sentiment, and the national bank's policy actions.
- U.S. tariffs on Kazakhstan's exports may exacerbate the tenge's weakness, leading to diminished dollar inflows. However, the overall impact of tariffs may be limited due to Kazakhstan's smaller exposure to the U.S. market compared to other commodity exporters.
- Kazakhstan's Central Bank, despite the challenges, remains optimistic and highlights the country's policy tools, such as intervention in the foreign currency market and conscious interest rate management, to balance economic and currency stability.
- Experts predict modest tenge recovery in the near term, with the currency rallying back to an estimated average of ₸510-518/USD by the end of 2023[2]. Long-term prospects, however, depend on economic diversification efforts, oil prices, and the national bank's exchange rate policy.
- The volatility in global financial markets, triggered by the U.S. tariffs and the subsequent protectionism, has indirectly influenced the value of the Kazakh tenge, causing it to depreciate further due to the 27% duty imposed on Kazakhstan's imports.
- Local sports enthusiasts might have noticed a slight decline in participation and viewership, as the tenge's volatility and the average declining purchasing power may affect the budget for sports-related activities.
- Despite the Kazakh tenge's vulnerability, with an average value of around ₸510-518/USD predicted for the end of 2023, some analysts still advocate for investments in the Kazakh economy, given the country's potential for sustainable energy and agriculture development, as outlined by the IMF.
