September will bring more FX sales. Kazakhstan’s National Bank plans to release additional foreign currency onto the domestic market through several mechanisms after the tenge strengthened by 2.6% in August to 461.57 per US dollar, DKNews.kz reports.
The regulator disclosed the new parameters in its September 1 update on the foreign exchange market. The August appreciation of the tenge came without direct currency interventions by the National Bank.
Tenge strengthens 2.6% as monthly FX turnover reaches $8.7 billion
By the end of August, Kazakhstan’s national currency had strengthened to 461.57 tenge per US dollar.
Trading activity also increased. Average daily turnover on the Kazakhstan Stock Exchange rose from $389 million to $415 million, while total monthly trading volume reached $8.7 billion.
Foreign currency sales from Kazakhstan’s National Fund amounted to $200 million in August. That represented just 2.3% of total FX trading volume, or roughly $9.5 million per day.
The National Fund is Kazakhstan’s sovereign wealth fund, which accumulates part of the country’s oil revenues and is also used to finance transfers to the state budget.
The National Bank did not conduct any currency interventions in August. In practical terms, the regulator did not enter the market with emergency FX sales aimed specifically at supporting the tenge exchange rate.
Several new sources of dollar supply will enter the market in September
The biggest change comes in September.
The National Bank plans to sell between $200 million and $300 million from the National Fund.
At the same time, it is launching a new mechanism to mirror National Fund operations on the domestic FX market. Under this mechanism, previously purchased foreign currency worth another $200 million to $300 million is expected to be sold in September.
The largest figure, however, is linked to the mirroring of gold purchases.
Around 374 billion tenge was sterilized through these operations in August. In September, the National Bank expects to sell foreign currency equivalent to 374 billion tenge for the same purpose.
This means the market will simultaneously receive foreign currency from several channels: National Fund sales, the mirroring of National Fund transactions and FX sales connected with the mirroring of gold purchases.
The National Bank says these operations will be conducted in line with the principle of market neutrality.
Kazakhstan’s pension fund generated $721 million in FX demand
The increase in foreign currency supply is only one side of the market.
In August, the National Bank also purchased foreign currency to maintain the foreign-currency share of assets held by Kazakhstan’s Unified Accumulative Pension Fund, known as the UAPF.
Those purchases totaled $721 million, equivalent to around 8.3% of total FX market turnover for the month.
For comparison, direct foreign currency sales from the National Fund stood at $200 million. That means FX purchases for pension assets were more than three times larger than National Fund sales.
This counterflow matters for the tenge.
Foreign currency sales increase the supply of dollars, while purchases made for pension assets create additional demand. As a result, even substantial FX sales in September do not automatically guarantee further appreciation of the Kazakh currency.
Further decisions on foreign currency purchases for pension assets will depend on market conditions.
The tenge will depend on more than Central Bank operations
The National Bank is not setting a target exchange rate for September and continues to operate under a flexible exchange-rate regime.
According to the regulator, the short-term performance of the tenge will depend on several factors, including market expectations, quarterly tax payments, conditions in global financial markets and changes in the geopolitical environment.
September therefore begins with several forces pulling in different directions.
The tenge enters the month after strengthening by 2.6%, while the market is preparing for additional FX sales. At the same time, demand for dollars linked to Kazakhstan’s pension assets may remain significant.
We previously examined the National Bank’s large-scale FX sales and what they could mean for the tenge, when the balance between dollar supply and domestic demand was already becoming one of the key factors for Kazakhstan’s currency market.
