Analysis: trend of tenge firming seems to be not over yet

/IRBIS, Nov.29, 99/ - Last week of Kazakhstani market for the dollar can be called a turning point if judged by the factors affecting the exchange rate. First two days of the week reflected the trend of the previous period. Due to the fact, that both the exchange rate of the dollar at the Currency exchange and official exchange rate were floating above the interbank rates, exporters kept selling their currency earnings at KASE, notwithstanding the cancellation of mandatory sale and maintaining prevalence of supply of dollars over the demand for them. Under the pressure of this supply the exchange rate of the dollar kept falling at a previously reached speed - about 50% APR. However, large volume of dollar sales on the Exchange on Tuesday (20.170 mln) and prior active sale of an American currency for a whole month (average $12.5 mln for a trade) was excessive. It seemed as if those who wanted to open short positions in USD have already done so, and the exporters sold the part of their earnings they have planed to sell by Wednesday morning. There were no new inflows. As a result, on Wednesday the exchange market was unrecognizable. Large volumes of dollar supply from the banks of the second tier have disappeared, which have caused a sharp decline in trade turnover. An organized demand have emerged on the floor. It remained the same in terms of money, however, could not be balanced by supply. Throughout the trade exchange rate of the dollar kept rising. Dealers interpreted this in different ways. One referred to inevitability of upward correction after an intensive fall in the exchange rate of the dollar (the market was still "overheated" by active sales). Others considered the exchange rate grows a consequence of active speculations of the banks benefiting from the difference in Currency exchange and interbank rates. But both the former and the latter were convinced that the market was "looking upwards", firming of the dollar was local and it was early to talk about reversal of the trend. Because the Currency exchange's rate was lower than that of the interbank market, exporters' earning did not return to KASE in following days of the week. Even if the currency from the enterprises were coming it was sold mainly out of the Exchange. Trade volume on Thursday did not exceed five million USD (only 1.695 mln were used in calculations, since two deals have been made with violations of "Ethics norms of KASE members"), and three millions on Friday. The Currency exchange market was very "thin", volatile, and dynamics of the exchange rate of the dollar was more susceptible to speculative actions of the dealers than ever before. For this reason Exchange's rate of the dollar was not much stable in second half of the week. However, by the results of the week tenge got stronger, but rate was slower this week than it was last week (20.8% APR against 51.8% APR). Despite these events, specialists of IRBIS believe that long term trend of tenge firming is not over yet. Results of an analysis of the head bank's and the Ministry of Finance's behaviors in all sectors of Kazakhstani financial market show their support of this trend. And the market professional participants can feel it. It was the reason for the investors to give preference to non-indexed papers at last four successful auctions on offering government securities with 3,007.2 mln tenge invested in them, whereas in "currency" papers - only 1,552.1 mln. And it is only because currency papers were the longest (6 and 9 months). For this reason an extraordinary amount of money (5,128.5 mln tenge), received by investors after repayment of government securities this week, had no impact on dynamics of the exchange rate of the dollar and volume of demand in currency circulation sector. Currency dealers of the banks understand it clearly that the National Bank has sufficient reserves to neutralize any demand for the dollars. If the National Bank is interested in firming of tenge for a number of reasons then this trend will be secured. Hence, it is a nonsense to try to raise the dollar. Considering the facts mentioned above it can be assumed that tenge will continue to gain against the dollar, but the rate could be less than previously achieved. Strengthening of tenge will be beefed up by exporters' earnings, volume of which, as it was observed by past experience, is the most in first ten days of each month. However, it should be taken into consideration that after cancellation of mandatory sale at KASE exchange market of the dollar is getting "thinner". Therefore, stability of the trend of the exchange rate will lessen and a growth can be observed by the results of some trades.