Kazakhstan’s tenge rise against the US dollar is not all down to rising oil prices
Written by Dermot Monaghan on March 14, 2017.
The Kazakh tenge has been trading more strongly this year as the oil price continues to see strength. Year to date it has gained 2.6% on the US dollar and is trading in a range of between roughly 5.4 and 5.6 versus the Rouble.
The inverse correlation between oil prices and the US dollar is an established relationship however both have risen together in recent months, bucking this trend. The recovery in oil prices has primarily been driven by the long-awaited agreement between OPEC and a number of non-OPEC nations on production cuts, while the US dollar has continued to strengthen as interest rate expectations have increased.
It will be interesting to see how long this break in the relationship will last. Global analysts are not expecting to see a continued rise in the price of oil. Brent currently stands at $52.46 a barrel. A Reuters poll estimates that Brent and US WTI crude oil prices will average $57.01 and $55.23 respectively per barrel in 2017 compared to EIA estimates of $53.50 and $52.50.
US oil output in 2016 was high and this trend looks set to continue. In January 2016 the number of active US oil rigs was reportedly at its highest level since November 2015, while executive orders from President Trump gave the green light for the construction of the controversial Keystone and Dakota pipelines. This has led to concerns about the prospect of further US supply weighing on prices.
There are also some doubts over the compliance of the OPEC supply agreement and the impact it will have on rebalancing the market, with recent reports of production in a number of countries reaching record highs. Oil output in Kazakhstan has picked up with the resumption of pumping at the Kashagan field. Any ramp up in US shale production also appears likely to be a key factor in the price of crude oil.
Any future gains for the tenge against the US dollar are unlikely to be due to a rally in the price of oil. Since the beginning of 2015, the rouble has strengthened over 30% versus the US dollar, a rise which could benefit the tenge as they are seen as similar currencies pairs. This, coupled with the potential lifting of sanctions against Russia, could combine to offer a long-awaited bounce for the tenge. If that does happen, we could see the tenge going back to trading at 250 to the US dollar, which is still some way off the 195 to the US dollar rate it was at before the central bank shifted to a free float in 2015.
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The recent tenge story may be a tale of woe but that doesn’t mean that you can’t have a financial happy ending. To find yours, you can contact me by email at firstname.lastname@example.org, call me on +7 (747) 837 0469 or skype me at dermot.m.monaghan.