Weekly Forex Review (10/02/2023-10/06/2023)

The dynamics of the tenge exchange rate against the US dollar showed multidirectional fluctuations last week. The tenge exchange rate weakened by 0.8% to the level of 478.4 tenge per dollar at the end of the week. The national currency shows a relatively greater sensitivity to changes in internal factors than external ones. Thus, the tenge practically did not react to the decline in the global oil price, but at the same time, it was expected to weaken by the end of the week due to the decision to lower the base rate. A more significant weakening of the tenge's position did not occur since market participants had already put their expectations into the tenge exchange rate. So the tenge has weakened by 4.1% against the US dollar since the end of August.

The new NBK forward guidance, which provides for further easing of monetary conditions only if inflation reaches a single-digit value, reducing the base rate by the end of this year is very unlikely. This at least in the short term, allows us to control devaluation expectations and limit the deterioration of the tenge attractiveness and the growth of exchange rate volatility.

Foreign economic factors were negative during the week. The Dollar Index is holding above 106 points. At the same time, on Tuesday, the Index broke through the 107-point mark. According to the US Department of Labor, the number of open vacancies has increased by 700 thousand, of which 600 thousand are in the private sector. The US labour market overheating may affect the further preservation of the hawkish policy of the US Federal Reserve. Expectations for the period of high interest rates increased the yields of 10 and 30-year US Treasury bonds, which reached the highest in the last 16 years this week. However, the Dollar Index fell to 106 points on the slowing data on new jobs for September (170 thousand against 187 thousand in August) by the end of the week.

The oil price fell to $84 per barrel last week (-8.3% for the week). If before the reduction in supply from Saudi Arabia and Russia stimulated the growth of oil prices, then last week concerns about a reduction in consumption came true. First of all, the signal was an increase in gasoline stocks in the United States. Gasoline stocks for the week increased by 1.027 million barrels, amounting to 6.5 million barrels, and the supply of finished gasoline fell to the lowest level since the beginning of the year (8 million barrels per day). However, the price of oil is starting to rise due escalation of the conflict in the Middle East.

The ruble continues to weaken and has broken the psychological mark - 100 rubles per dollar. The depressing dynamics of the Russian currency occur amid rising prices for Russian oil. The main factor in the further weakening of the ruble is a reduction in exports with an increase in imports. Previously, the effect of the negative trade balance was restrained by tax revenues during the tax week. A small support for the ruble may be provided by the government's decision to lift the ban on the export of diesel fuel through pipelines in ports.

In total, the tenge exchange rate remains dependent on the expectations of participants in the domestic foreign exchange market. According to our forecasts, tenge will move in the range of 473-479 tenge per dollar by the end of the month.