Tenge's Fluctuations Influenced by Lower Oil Prices and Trump's Tariffs

Catching up with the capital city's pulse, The Astana Times presents a deep dive into the weakening Kazakh tenge.

Tariff turmoil and dwindling oil prices are wreaking havoc on Kazakh currency.

After U.S. President Donnie Trump announced tariffs on a gamut of products, triggering increased volatility in the global financial markets, the shockwaves spilled into the Kazakh currency tenge. Although Kazakh exports weren't targeted directly by the U.S. tariff measures, the tremors reverberated across the deck, sending ripples to the Kazakh currency.

On April 7, the tenge's exchange rate on the Kazakhstan Stock Exchange (KASE) was 519.12 tenge per U.S. dollar, a 2.7% slide compared to the previous trading day. Over the week, it weakened by 2.9%. Renowned Kazakh economist Galymzhan Aitkazin attributes this primarily to the plummeting oil prices and not the U.S. tariff decisions.

The current drop in oil prices is the trump card pressuring the tenge. Brent crude has plummeted to a three-year low of $63 per barrel, with no signs of improvement in sight. Following the lead, eight OPEC+ countries agreed to hike production by 411,000 barrels per day, while the U.S. government is advocating for a surge in domestic production, compounding pressure on oil prices.

Besides oil prices, the tenge's slide is also influenced by the close economic relationship Kazakhstan shares with Russia. The Russian ruble exchange rate is now playing a more significant role in the tenge's movement, leaving experts like Aitkazin to question the influence of tariffs on the currency.

In an official statement, the National Bank of Kazakhstan acknowledged a sharp decline in risk appetite, the crumble of risky assets, a slump in major U.S. stock indices, and tumbling oil prices as predominant factors determining the exchange rate. From March 31 to April 7, the emerging markets currency index dipped 1.8%, with the South African rand losing 7.3%, the Russian ruble 3.8%, the Brazilian real 3.5%, the Indonesian rupiah 1.5%, and the Mexican peso 1.1%.

Against this backdrop of tumbling oil prices and unleashed market uncertainty, the tenge and other currencies from emerging markets are feeling the heat. Anticipating further instability, the National Bank is keeping a keen eye on the market and is braced to act decisively to prevent chaotic currency fluctuations.

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Fundamental Factors:

Oil Sector Decline: The significant slump in oil prices from over $81 to around $74.6 per barrel has been the main driver for the weakening tenge. Kazakhstan's reliance on oil sales makes it vulnerable to low oil prices, hindering foreign currency inflows and escalating fiscal strain.
Global Trade Tensions: Mounting geopolitical trade tensions, such as the U.S.'s disputes with trading partners like China and Canada, are instigating uncertainty that ultimately impacts Kazakhstan's export outlook, putting pressure on the tenge.
Market Volatility: External shocks like prolonged geopolitical tensions and the tumbling value of risky assets are culprits for the upward surge in the USD/KZT exchange rate. Furthermore, regional currencies' depreciation, such as the Russian ruble, has mirrored the tenge's slide.

Intervention Efforts:

The National Bank has implemented currency market interventions, boosting fiscal and gold-related sales, as well as deploying more FX reserves to stem the depreciation of the tenge, although these measures have been only partially successful in counteracting external pressures.

Future Outlook:

Currency Forecast: Revised to an average USD/KZT exchange rate of 512.8 for 2025 (up from 489.5 in January forecasts).
Inflation: Inflation is predicted to remain within the National Bank's target range of 10–12% YoY (at 10.0% in March 2025), but the exchange rate volatility could fan price pressures once again.

Despite the announcement of tariffs by U.S. President Donnie Trump causing volatility in global financial markets, Kazakh economist Galymzhan Aitkazin attributes the primary reason for the weakening Kazakh tenge to the plummeting oil prices, rather than the tariff measures.
After the agreement by eight OPEC+ countries to hike production by 411,000 barrels per day and the U.S. government advocating for a surge in domestic production, the current drop in oil prices is considered the trump card pressuring the tenge.
In an effort to stem the depreciation of the tenge, the National Bank of Kazakhstan has implemented currency market interventions, including boosting fiscal and gold-related sales, deploying more FX reserves, and making strategic foreign exchange market interventions; however, these measures have only been partially successful in counteracting external pressures.