Weekly Forex Review (10/09/2023-10/13/2023)

According to the results of the past week, the exchange rate of tenge agains the US dollar increased slightly (0.3%) and amounted to 477 tenge per dollar. Tenge strengthening was observed against most foreign currencies, except for the Russian ruble. The weakening of the tenge against it from 4.77 to 4.91 tenge per ruble (2.9%) occured amid gaining support for the Russian currency in a decision on the mandatory sale of part of the foreign exchange earnings. In general, the internal factors of exchange rate formation remain unchanged, while the external economic balance of factors has acquired a more negative tone.

Thus, the Dollar Index for the week strengthened by 0.6 points and formed at the level of 106.7 points at the end of the week. The strengthening of the dollar occurred due to the current worse than expected statistics on inflation in the United States. According to the data, the consumer price index for the month increased by 0.4% in September and in annualized terms amounted to 3.7% (with a forecast of 3.6%). Household inflation expectations are also deteriorating, which reached a five-month high. Such dynamics of inflation creates space for further Fed rate hikes.

The oil price fluctuated rhythmically in different directions during the week, but closed at $ 90.9 per barrel (a weekly increase of 7.5%). Such an increase in volatility is explained by the reaction of oil traders to the escalation of the conflict in the Middle East. At the beginning of the week, Saudi Arabia announced the full supply of oil to customers from North Asia, which indicated the absence of any interruptions in oil supplies. However, as the tension of the the conflict increased and the likelihood of Iran's involvement in the conflict increased, oil prices began to rise and exceeded the $90 per barrel mark. In the event of Iran's entry into the conflict, the United States may tighten sanctions on the Iranian oil export. Previously, to compensate for the reduction in production, the United States turned a blind eye to an increase in Iranian oil supplies.

The ruble exchange rate over the past week against the dollar increased by 3.1%, amounting to 97.2 rubles per dollar. The strengthening of the ruble after a long period of weakening is explained by the Government's measures to stabilize the exchange rate of the Russian currency. The main measure is the mandatory sale of at least 80% of foreign exchange earnings by 43 exporting companies. This measure will increase the volume of foreign currency supply on the market. Additional support is provided by the harsh rhetoric of the Central Bank of the Russian Federation, which assumes a long period of maintaining a high level of the key rate until a significant slowdown in the pace of price growth manifests itself.

The tenge exchange rate continues to develop in the range of our forecast and indicates a smoothed reaction of economic agents to foreign economic changes. This is due to the stabilization of currency expectations of participants in domestic currency trading due to a new signal from the NBK suggesting a high probability of maintaining the base rate at the current level until the end of 2023. Our forecasts for the current month suggest fluctuations in the exchange rate of tenge against the US dollar in the range of 473-479 tenge per dollar.