April was an eventful month for Kazakhstan’s foreign exchange market. The dollar weakened, the tenge strengthened noticeably, trading volumes on the Kazakhstan Stock Exchange increased, foreign currency was sold from the National Fund to finance budget transfers, and the National Bank, at the same time, bought foreign currency for pension assets, DKNews.kz reports.
At first glance, these figures may look like technical financial data. But behind them lies a question that matters to almost everyone in Kazakhstan: why did the tenge strengthen, where could the dollar go next, and what exactly is the National Bank doing in the market?
By the end of April, the tenge had strengthened by 3.1%, reaching 463.09 tenge per US dollar. For households and businesses closely watching exchange rate movements, this is a significant shift.
Why did the tenge strengthen?
Several factors influenced the tenge’s performance in April. One of them was stronger activity on the Kazakhstan Stock Exchange.
Over the month, the average daily trading volume rose from USD 372 million to USD 394 million. The total trading volume reached USD 8.7 billion.
This suggests that there was sufficient supply and demand in the foreign exchange market. In other words, there was no visible shortage of dollars, trading remained active, and the exchange rate was largely shaped by market factors.
Another important point is that the National Bank did not conduct any foreign exchange interventions in April. Put simply, the regulator did not directly enter the market to artificially support the tenge or push down the dollar.
That is an important signal. It means the tenge’s strengthening was not the result of administrative pressure, but rather of real supply and demand in the market.
USD 300 million was sold from the National Fund
In April, USD 300 million was sold from the National Fund to support transfers to the national budget.
At first, the amount may seem large. But compared with the total trading volume, its share was not particularly high - 3.5%. On average, sales from the National Fund amounted to around USD 13.6 million per day.
Considering that the total market turnover reached USD 8.7 billion, it would be difficult to say that National Fund operations played a decisive role in the foreign exchange market. They had an impact, but they were not the main factor determining the exchange rate.
In May, the volume may increase. Based on the Government’s preliminary forecast applications and expected fiscal revenues, the National Bank expects to sell between USD 400 million and USD 500 million from the National Fund to finance transfers to the national budget.
That is higher than in April. This means National Fund operations are likely to remain in focus for market participants in May.
What do “mirroring” operations mean?
In April, around 354 billion tenge was sterilized as part of “mirroring” operations. In May, foreign currency sales equivalent to 354 billion tenge are expected for the same purpose.
For people outside the financial sector, the term may sound complicated. In simple terms, the mirroring mechanism helps regulate excess tenge liquidity in the market. It allows the National Bank to balance money flows so that large budget and currency operations do not put excessive pressure on the exchange rate.
The key principle here is market neutrality. When conducting operations with National Fund assets, as well as when implementing the mirroring mechanism, the National Bank aims not to distort the natural balance of the market.
In other words, the goal is not to artificially strengthen or weaken the tenge. The goal is to prevent large financial operations from having an excessive impact on the market.
How much foreign currency did the quasi-public sector sell?
In April, sales of foreign currency proceeds by quasi-public sector entities under the mandatory partial sale requirement amounted to approximately USD 273 million.
This was another factor supporting foreign currency supply in the market. When part of export revenues is sold on the exchange, the supply of dollars increases. And when supply rises, pressure on the tenge may ease.
But here, too, it would be wrong to link everything to one factor. The exchange rate is always shaped by a combination of forces: oil prices, external markets, tax periods, budget operations, expectations among businesses and households, and the geopolitical environment.
Why did the National Bank buy USD 502 million?
One of the most interesting figures from April was the National Bank’s purchase of foreign currency.
A natural question arises: if the tenge was strengthening, why did the National Bank buy dollars? The answer lies in the structure of the Unified Accumulative Pension Fund’s pension assets.
Due to inflows of pension contributions and the strengthening of the tenge, the foreign currency share of pension assets fell below 40%. As a result, in April the National Bank purchased USD 502 million in foreign currency through exchange trading.
This accounted for around 5.8% of total trading volume.
The purpose of such operations is to maintain the currency balance of pension assets. Pension savings should not depend solely on one currency or one market. That is why assets are diversified across different instruments and currencies.
In other words, this was not an attempt to push the dollar higher. It was a technical and strategic decision made as part of the investment management of pension assets.
Future decisions on such operations will be made with market conditions in mind.
What could happen to the dollar in May?
Several factors may influence the tenge exchange rate in May.
The first is market expectations. Psychology plays a very important role in the foreign exchange market. If businesses and households expect the dollar to rise, demand may increase. If confidence remains strong, the exchange rate tends to be more stable.
The second factor is quarterly tax payments. During such periods, exporters may convert their foreign currency revenues into tenge to meet tax obligations. This can provide additional support for the national currency.
The third factor is the situation in global markets. External conditions are extremely important for Kazakhstan. Oil prices, the global dynamics of the US dollar, demand in commodity markets, decisions by major central banks, and geopolitical developments can all affect the tenge directly or indirectly.
The fourth factor is the volume of foreign currency sales from the National Fund. In May, USD 400-500 million is expected to be sold. This may affect the supply of dollars in the market, although the National Bank emphasizes that it will continue to observe the principle of market neutrality in such operations.
What is the main takeaway?
The key result of April is that the tenge strengthened without foreign exchange interventions by the National Bank. For the market, that is an important signal.
Foreign currency was sold from the National Fund, the quasi-public sector sold part of its foreign currency proceeds, foreign currency was purchased for pension assets, and trading volumes remained high. Yet all of this took place within the framework of a flexible exchange rate regime.
The National Bank says it will continue to disclose full information about its operations in the foreign exchange market. This matters for the market, businesses and ordinary citizens alike. In the currency market, trust and clear information often play a decisive role.
The main question now is whether the tenge can maintain its momentum in May. The market itself will provide the answer. But April showed that the exchange rate is no longer driven by a single factor. It depends on the balance of several major forces: budget operations, tax periods, external markets, geopolitics and, most importantly, the confidence of market participants.
For now, one thing is clear: in April, the tenge strengthened its position, while the dollar’s next move will depend on market conditions in May.
