Weekly Forex Review (03/13/2023-03/24/2023)

The dynamics of the tenge exchange rate for the last 2 weeks have mostly been influenced by external economic factors. Thus, the exchange rate has grown to 466 tenge per dollar since the beginning of the year, and it fell to 457 tenge by the end of the week (March 24). In general, this weakening is explained by the household emotional factor, which is shifting towards negative expectations about the onset of a global recession associated with problems in the banking sector.

The crisis of confidence in the banking segment raises concerns among market participants and affects the entire global economy despite the rapid reactions of regulators in developed countries.

Concern about the global economic state, as well as the increase in key rates by CBs of leading countries affects the reduction of risk appetite, which greatly affected oil quotes. Expectations about a demand reduction lowered oil prices to $72.97 per barrel. We note that this is a record decline since November 2021. Lower prices for raw materials and expectations about a decrease in their consumption volume entail a reduction in export earnings and lead to the exchange rate weakening.

We observed a significant strengthening of the tenge, supported by positive expectations of market participants about the withdrawal of uncertainty and risk reduction in the first 2 months of this year. However, the growing risks of a possible global recession have turned the mood of market participants, especially on oil prices and the stability of the disinflationary trend.

The current dynamics of the exchange rate coincides with our baseline forecast, and under the influence of basic economic conditions, the withdrawal of excessive positivity reflects the equilibrium rate. The current dynamics of the exchange rate are not a critical weakening, and further solving problems of the global financial sector will increase the positivity of market participants, which will positively impact the exchange rate.