The Kazakhstan Tenge Traded Slightly Stronger | Lira (TRY) Is Under Pressure
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USD/RUB
Current spot: 62.17
• USD/RUB ended September precisely at our 60.0 target after a volatile month: mobilisation-driven demand for FX mid-month was followed by a corporate FX sell-off on high tax payments and fears of new sanctions against the financial system, including the National Clearing Center. That scenario has not materialised yet.
• October may also prove volatile, as higher oil prices post the OPEC+ meeting, Gazprom’s extra tax and dividends should create a push for a stronger rouble, while geopolitical escalation may steer it in the other direction.
• Our longer-term view on RUB depreciation remains unchanged due to the EU oil embargo, recovery in imports and likely resumption of foreign asset accumulation by Russia, including MinFin.
USD/UAH
Current spot: 36.93
• Russian mobilisation suggests no end to the war anytime soon, despite Ukrainian military successes. As such, the National Bank of Ukraine will remain forced to defend the hryvnia, largely relying on international aid to shore up its FX reserves (as the trade balance remains in deep deficit). If the war escalates, the risk of renewed UAH depreciation remains high.
• Uncertainty over the long-term prospects of the hryvnia remains very high. The Russian aggression will most likely continue in 2023, as freshly mobilised troops arrive in bulk. Moreover, the NBU may be more prone to directly supporting the government, after the Governor Kyrylo Shevchenko resigned.
USD/KZT
Current spot: 474.56
• The Kazakhstan tenge traded slightly stronger than our USD/KZT 480 target despite lower oil prices, suggesting a recovery in physical exports in September. FX spot trading volume was thin, with exporters’ FX repatriation and sovereign fund’s FX sales for state spending jointly accounting for 32% of it vs. 20% in August.
• The recent OPEC+ deal appears supportive for oil prices without any negative effect on Kazakhstan’s exports. Private capital flows should remain KZT-neutral to positive as long as President Tokaev’s re-election on 20 November is perceived as likely.
• The tenge’s longer-term bias remains bearish till 1-2Q23 amid global USD strength. Also, recent comments from the sovereign wealth fund suggest that FX sales from the fund may be reversed until year-end and may shift to FX asset accumulation next year.
USD/TRY
Current spot: 18.58
• The policy mix has tilted to a more supportive stance lately given i) another Credit Guarantee Fund package (reportedly at least TRY50bn) which could reverse the recent loss in momentum in lending, though the timing is not specified yet ii) signs of a more expansionary stance on the fiscal side in the medium term plan compared to the previous one iii) 200bp of rate cuts by the Central Bank of Turkey with an emphasis on the importance of keeping financial conditions supportive.
• However, given tighter regulations on the asset side that selectively limit loan growth, cuts are not easing the financial conditions as fast currently.
• TRY is likely remain under pressure in the near term due to elevated inflation and pressure on the external balance amid the unsupportive global backdrop etc. A recovery in FX reserves will be more challenging in this environment.
USD/ZAR
Current spot: 18.14
• USD/ZAR recently rose above 18.00 as US yields and the dollar punched to the highs of the year. We are not looking for a top in the dollar until 1Q/2Q next year, meaning that USD/ZAR still risks pushing up to 18.50 and possibly 19.00. The rand is a high beta on Chinese growth and EM prospects in general – neither of which look compelling this year.
• South Africa’s current account has moved a little deeper into deficit, earlier than expected (1.3% of GDP in 2Q) and the central bank will likely have to keep hiking (now 6.25%) to stabilise the rand.
• Political event risk exists at the December ANC conference. President Ramaphosa is under pressure, but alternatives are few.
USD/ILS
Current spot: 3.5626
• The move of USD/ILS to 3.60 has surprised us – but should be quickly reversed. Israel stills enjoys a sizable current account surplus in excess of $4bn per quarter and has a central bank hiking in 75bp increments in the face of full employment and GDP growth expected at 6% this year and 3% next year. The market expects the Bank of Israel to continue hiking to the 3.75% area – another 100bp.
• The main risk to the shekel is the investment environment, where high US rates are damaging the tech sector and FDI into Israel. These conditions may persist into early 2023.
• We are big fans of the shekel and see it capped in the 3.50/3.60 area – and the BoI may struggle to keep it over 3.00 next year.
This article is a part of a report by ING Economics available here.
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
