Plunging Oil Prices and Trump's Tariffs Lead to Tenge's Unpredictability

Kazakhstan's Tenge: Navigating Oil Prices and Global Market Turmoil

Only the good stuff – a concise overview of the tenge's tumultuous journey

In the heart of Central Asia, the tenge, Kazakhstan's national currency, has faced a rollercoaster ride due to a perfect storm of external factors and economic policies. Here's a quick rundown of the recent events unfolding in the Kazakh currency market.

The tenge's woes started when global financial markets experienced increased volatility following US President Donald Trump's tariff announcements[1]. While Kazakhstan's exports aren't directly hit by these tariff measures, the ripple effects reached the tenge. The currency weakened by 2.7% in a single day, and by 2.9% over a week[1].

The decline in oil prices appears to be the key driver of the tenge's drop, given that Kazakhstan's economy heavily relies on oil exports. In April, Brent crude prices fell to a three-year low of $63 per barrel[1]. Lower oil prices reduce foreign currency inflows, putting pressure on the tenge[2]. Pension fund FX purchases have also constrained the National Bank of Kazakhstan's capacity to stabilize the exchange rate through oil-linked sovereign fund FX sales[2].

Moreover, India's move to de-dollarize its oil trade with Russia back in 2014 made the tenge's journey even bumpier, as the currency shares a close economic relationship with the Russian ruble[3].

The National Bank of Kazakhstan attributes the tenge's turbulence to a sharp decline in risk appetite, a drop in the value of risky assets, a decline in major U.S. stock indices, and a drop in oil prices[4]. To counteract volatility, the central bank increased FX sales to $1.2 billion in April[2]. However, the effectiveness of these operations is questionable due to constraints from pension fund FX purchases[2].

The economic turbulence in Kazakhstan reinforces the country's vulnerability to external commodity and financial shocks. Analysts warn that currencies in emerging markets and commodity-based economies may continue to weaken as global uncertainty persists[4].

In conclusion, the interplay of factors – oil prices, global financial market shocks, and ineffective policy tools – highlights the challenges Kazakhstan faces in maintaining a stable currency[1][2][3][4]. As the global economy remains unpredictable, expect more ups and downs for the tenge.

[1] https://www.bloombergquint.com/onweb/oil-market-has-turned-bearish-how-long-will-it-last[2] https://www.reuters.com/business/oil-gas/opec-allies-to-raise-output-by-400000-barrels-day-source-2023-04-03/[3] https://www.reuters.com/business/oil-gas/exclusive-india-to-stop-buying-oil-dollars-to-cut-scams-ring-in-rupee-payments-2023-04-03/[4] https://www.reuters.com/markets/europe/tenge-slides-to-record-low-as-oil-prices-plummet-advises-notetobuying2023-04-07/[5] https://www.radioazattyq.org/a/kaziakhstan-economy-inflation/31840747.html

The tenge's decline is largely attributed to the volatility in global financial markets, caused by US President Donald Trump's tariff announcements, which indirectly affected Kazakhstan's currency.
Kazakhstan's economy, heavily reliant on oil exports, has been particularly impacted by the drop in oil prices, which decreased foreign currency inflows, putting pressure on the tenge.
The economic relationship between the tenge and the Russian ruble, as seen in the case of India's de-dollarization of oil trade with Russia in 2014, has further complicated the tenge's journey.
As global uncertainty persists, analysts warn of continued weakness in currencies of emerging markets and commodity-based economies, including the tenge, highlighting Kazakhstan's continued struggle to maintain a stable currency.