This page has been archived and commenting is disabled.
Currency Wars Continue As Kazakh Currency Crashes 25% After Peg Abandoned
On Tuesday we remarked on the increasingly perilous plight of yet another country whose economy has come under increased pressure from plunging oil prices and China’s move to devalue the yuan: Kazakhstan.
Just one day after allowing the tenge to fall sharply in the interbank market and no longer able to take the pain from falling crude prices, the country moved to a free float for the tenge overnight, causing the currency to plunge by a quarter.
The move is clearly a desperate attempt to preserve export competitiveness in the face of a falling rouble and a devalued yuan. This is the third time the country’s central bank has devalued the currency since 1999 - the last time was in February of 2014.
Although central bank governor Kairat Kelimbetov put on a brave face and very rationally explained that "this is not a devaluation, this is a transition to a freely floating rate when the market itself determines a balanced exchange rate on the basis of demand and offer," it’s quite clear that the situation for the country's exporters had become dire and bringing the tenge more inline with moves seen in the currencies of China and Russia (Kazakhstan's top trading partners) was probably long overdue. Here’s Bloomberg:
The central Asian nation, which counts Russia and China as its top trading partners, said it was switching to a free float, triggering a 23 percent slide in the tenge to a record 257.21 per dollar. Following the shock yuan devaluation last week, a gauge of 20 developing-nation exchange rates capped its longest slump since 2000, and losses continued this week as Vietnam devalued the dong and currencies from Russia to Turkey fell at least 3 percent.
Kazakhstan is central Asia’s biggest crude exporter and the country’s raw material producers have suffered since Russia stopped managing the ruble last November. In addition to the 55 percent slide in oil in the past year, the yuan move elevated pressure on the nation’s peg by forcing countries that rely on Russia and China for trade to seek ways to stay competitive.
The ruble has slumped 46 percent in the past 12 months, versus a 7.6 percent weakening for the tenge before today’s switch. Kazakh business association Atameken and the chief executive officer of ArcelorMittal’s local unit were among business leaders complaining that the price differential had diminished the competitiveness of locally made products from steel to grains and coal.
The “move follows a huge loss of competitiveness, as key trade partner Russia has allowed the ruble to depreciate significantly as commodity prices slumped,” Tom Levinson, the chief foreign-exchange and rates strategist at Sberbank CIB in Moscow, said by e-mail. The yuan’s depreciation “may be an additional factor,” he said.
Yes, it very well "may be an additional factor" and the longer the crude plunge persists the more pressure they’ll be although as Citi notes, the move may have overshot depending on how you look at it. "REER-based analysis implies only about a 15% depreciation to 226, although a return to a more ‘fair’ value against the RUB necessitates a larger move to around 267," the bank’s FX strategists say.
So the race to the bottom is on, the only question now is what other hard-hit countries already suffering from the global commodities slump and the threat that the Fed might one day stop bluffing will China's FX bombshell push over the edge in the weeks and months ahead.
* * *
More color from Citi:
Kazakshtan has taken a bolder approach to currency determination by fully scrapping the existing currency band. Earlier In July the central bank had widened the currency corridor of the USDKZT to 170-198 from 170-188. The USDKZT fell to 254 in early trading.
The move breaks the more statist approach to currency determination, although it is consistent with the broader strategy of allowing more currency flexibility against the backdrop of slumping commodity prices
In May the National Bank of Kazakhstan had announced its intention to gradually loosen its grip on the tenge and move to inflation targeting in order to better address adverse global macroeconomic shocks, including slower growth in key trading partners and less favorable commodity prices. More recently, China currency devaluation and the renewed downward pressure on oil prices may have served as the trigger behind the current move to allow the tenge to depreciate further in our view.
From BofAML:
With the continued selloff in oil, the KZT will likely remain under pressure in the near future. Moreover, the FX could also suffer from the likely new round of dollarization after the shift. All of this, we think could push the KZT weaker than our projected KZT250/$ level in the near future. Moreover, after several rounds of dollarization in the past few years, we think that the potential for further local FX demand will likely be limited, as a much weaker KZT could start to trigger the reversal of FX positions. Therefore, we think that with a strong one-off move today, a large part of KZT weakness could already be priced in.
From Deutsche Bank:
In our view, the move of Kazakh authorities towards weaker tenge was in part expected by the market given both February 2014 20% depreciation did not account for the decline in oil prices over 2H14 and 2015, while the widening of the exchange rate band in July 2015 did not provide enough space to accommodate the pressures. At the same time, earlier this year the authorities declared a possibility for further exchange rate depreciation in case oil prices declined to the levels below USD50/bbl.
The move towards inflation targeting is likely to support the country’s production activity with its non-oil export segment heavily relying on the Russian market, therefore it may prop up the growth in the country and help fiscal sector to accommodate external pressures in case they continue to mount (Kazakh President Nursultan Nazarbaev stated yesterday that the country should be prepared for USD30-40/bbl). Given the more flexible approach to the exchange rate and our base case scenario of oil prices reaching the level of USD62/bbl by the end of the year, we revise our 2015 year end forecast form KZT/USD213 to KZT/USD225.
»
- 20144 reads
- Printer-friendly version
- Send to friend
- advertisements -
Should have bought gold and silver. All emerging market currencies are crashing. Protect yourself.
Just talked to a co-worker from Kazakhistan -- she says this happens all the time, and no one is worried because everyone has USD accounts because of this.
:-|
The devaluations in february 2009 and february 2014 were only half of this one though...
I told her its 25%, she shrugged her shoulders.
It'll make paying taxes there easier, but when the USD tanks those people will have no idea what hit them.
Just imagine what it will be like when the FED Reserve notes approach their natural value of zero.
somehow tittes up come to mind...
So, strippers will still take worthless fiat? Unlikely...
Tango Uniform
Been that way for a while , but the corpse is still walking...
Miraculous.
deleted
USD won't tank, will be replaced in a quick surprise move, people will have to exchange in a 3-4 week window, then those will be devalued
A few smart analysts see this coming as well.
my mom's neighbor earns limitless tenges every day on her laptop at home, is she your co-worker?
Logged in just to upvote you, good sir.
So what happens to the dollar accounts value when that too falls against Gold?.
True, but pension is in kzt, it's f#cked up. It is 120% devaluation over 10 years there.
Boratastan.
USD accounts?
Good luck when they get nationalized/forcibly converted into KZT by your friendly government, or transfer limits on foreign accounts put into place...
The dollar can only go up even without Fed raising rates. HA HA !
Stocks can only go down for make benefit of great nation like Kazakstan.
Just don't aid and abet a criminal gvt, now you are protected.
Seems they have been a buyer...
May 27 (Bloomberg) -- Russia and Kazakhstan expanded their gold reserves for a seventh straight month in April... ... Kazakhstan’s hoard grew 2.6 tons to 125.5 tons, taking the increase to 8.9 percent this year after a 41 percent expansion in 2012, data on the website showed.
World Gold Council August 2015 reports Kazakhstan's reservers are now 205 mt.
Shocking!
I almost fell out of my seat when I read the Tenge dropped 25 percent.
"...In my Country there is a problem...."
-Borat
"Throw the bankers down the well...so my country can be free!"
Throw the Jew down the well!
https://www.youtube.com/watch?v=Vb3IMTJjzfo
Now that IS a crash. I would like to see USD and or S&P dropping 25% in one day too.
can't happen in usa. in kazahk they have free market, here we don't.
"this is not a devaluation, this is a transition to a freely floating rate when the market itself determines a balanced exchange rate on the basis of demand and offer,"
Of course it is not a devaluation. You just have to pay 25% more for goods purchased from abroad along with everything else you do abroad. Maybe we should call it inverse appreciation? How's that?
loss of control=lol
i am responsible for the effort, but not the outcome, ha
Lets see your outcome then, Grade A of course.
Wasn't Borat from Kazakhstan?
Yes, in the same way Sherlock Holmes is from London.
We support your War of Terror!
https://www.youtube.com/watch?v=amFRTRMBk1A
My gut feeling is that this commodity slam is part of the banking elites effort to prop up fiat. Of course it will be spun as overcapacity and lack of demand. My biggest fear is that in their manipulation frenzy they will short the grains to the point where farmers can't keep up and the energy sector to where the whole show shifts down to a crawl.
Believe it, they are in complete control and it is all about grabbing everything of value do or die.
Cant wait to go on Holiday to Almaty, said no American ever....
http://www.teamramgold.com/about-us/
Yellen has vagina like sleeve
-Borat
Gees, so does my wife, that's why no one ever sees her.
It's a good thing Kazakhstan did not win the bid for the 2022 Winter Olympics.
And also Vietnam devalued their currency: http://bangkokpost.com/news/asia/663264/imf-hails-vietnam-for-currency-d...
And the IMF hailed it! :-O
The currency race to the bottom is just beginning. Place your bets now.
Yuan tenge mai dong?
One Kazahk dollar still buys one chicken.
Yuan de-peg imminent.
"Bulls Make Money, Bears Make Money, Pegs Get Slaughtered"
Everthing free in America!