USD/KZT

Tenge withstands geopolitical uncertainties so far

Current spot: 437.05

• USD/KZT moved to 420-440, in line with our positive scenario. High prices keep oil exports strong (+98% YoY in 1Q22), and capital account is protected by capped outward FX transfers, 10% subsidy to KZT deposits, and forced 75% FX sales by oil exporters.
• Kazakhstan renamed its oil exports via Russia (totaling 80% of annualised oil export) to KEBCO, allowing to reach US$11-12bn oil exports in 2Q22F (US$7.9bn in 1Q21) under average Brent price US$110/bbl.
• Geopolitics, trade ties with Russia (c.11% exports and c.42% imports) and potential relaxation of capital controls may return USD/KZT to 440-500 range, but a stronger KZT is also possible on higher oil, repatriation of previous grey capital outflows, and more inward FDI following the recent constitutional referendum.

USD/TRY

Currency pressures rising again

Current spot: 17.25

• May inflation showed no respite with continuing broad-based pricing pressures mainly driven by an accommodative monetary policy stance. Upside price risks remain at the forefront with ongoing geopolitical issues and less supportive global backdrop.
• Current account deficit has remained on expansionary path in March driven by commodity imports - particularly higher energy bills. As oil prices are expected to remain elevated, the current account will likely maintain the widening trend in the near term.
• Given this backdrop, sentiment in the currency market has turned negative since early May. Global developments as well as inflation expectations in an environment of negative real rates will remain as the determinants of the currency.

USD/ZAR

Impressive rand recovery

Current spot: 16.06

• The strength of the rand recovery has surprised us. ZAR real yields are not particularly impressive, where the policy rate is 4.75% and headline inflation is at 5.9%. The commodity story no doubt continues to help and was evidenced by a decent 1Q22 current account surplus of 2.2% of GDP.
• We still have our doubts about the strength of the Chinese recovery and unless Beijing introduces some bazooka-style stimulus after a late July politburo meeting, ZAR stays fragile.
• Our baseline view is that higher US real rates lead to a stronger dollar in 2H22 and $/ZAR heads back to the 16.00/16.20 area again. Later in the year politics will again play a role with ANC elections held in December. Ramaphosa remains the favourite to win.

USD/ILS

ILS poised to recover

Current spot: 3.4422

• $/ILS is consolidating about 3% off the highs of the year seen in mid-May. Interestingly in its review of FX markets in 1Q22, the BoI blamed ILS weakness on the domestic buy-side for uncharacteristically buying FX. It is not clear that those outflows will continue, but what may have a little more longevity are Israel’s current and FDI inflows, helped by the service sector.
• On the policy rate, the market may be too aggressive in pricing the policy rate at 2.50% next summer, but with growth still strong, hikes towards 1.00/1.25% look likely this year.
• When the dollar trend turns (early 2023?), $/ILS should turn decisively lower and sub 3.00 may well be the 2023 story.

This article is a part of a report by ING Economics

Disclaimer

This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more