Turbulent Tenge Is New Normal for Kazakh Trader Lured Onto Floorby
A day in the life of dealer in world's most-volatile currency
Liquidity has dried up since central bank curbed interventions
For Timur Gabasov, little has been the same since Kazakhstan switched to a free-floating exchange rate on Aug. 20.
Instead of watching the currency market via screens in his fourth-floor office, the 55-year-old treasurer at Centercredit Bank in Almaty now spends most of his day with his six-member team on the trading floor as a surge in the tenge’s volatility forces him to keep a closer eye on daily events.
“I used to sit in my office, from time to time checking what’s happening with my traders,” Gabasov said in an interview at his office last month. “I’m in the dealing room all day now.”
The sudden transformation of Gabasov’s daily workflow underscores how banks around the world are having to adapt to a new reality in foreign-exchange markets after China’s August devaluation pummeled commodity prices and as the Federal Reserve moves closer to lifting interest rates from close to zero. Emerging-market nations from Vietnam to Egypt have loosened long-standing currency regimes to shore up their economies by making exports cheaper to foreign buyers.
While tenge price swings have subsided after surging to a record 97.72 last month, one-month historical volatility is still the highest worldwide at 38.92 according to data compiled by Bloomberg. Less than a month after Kazakhstan cut the tenge free, it had slumped 34 percent to a record-low 299.99 per dollar, capping the sharpest three-month decline worldwide. The drop triggered a resumption of the central bank’s interventions and a 4-percentage-point increase in its benchmark interest rate to 16 percent on Oct. 2 to stem the declines.
Kazakhstan’s central bank won’t fight trends in oil and foreign exchange markets, but will intervene to smooth out shocks and counter speculation, Governor Kairat Kelimbetov said in an interview in Almaty on Monday.
“Unfortunately, there are some players in the market who think they can push the market,” Kelimbetov said. “This endless game is pointless.”
The tenge will slip a further 5.9 percent to 290 against the dollar by the end of the year because of continued oil-price weakness as well as the prospect that the Fed will hoist rates, according to Chris Weafer, a senior partner at Moscow-based consulting firm Macro Advisory. The currency slid 0.5 percent to 272.90 versus the dollar by the close in Almaty.
“We expect the tenge to come under further downward pressure,” he said in an e-mailed note on Sept. 30.
China’s decision to weaken the yuan on Aug. 11 sparked a wave of devaluations as it left countries competing with the world’s second-largest economy in export markets and those selling goods to it at a disadvantage. That added to the woes of emerging markets already reeling from a looming increase in U.S. interest rates and weakness in oil prices.
The Kazakh currency’s future is uncertain and navigating the trading day requires a flexible approach to strategies for Gabasov, who hedged his comments with “if” and “the market will decide.”
Standing in the trading room as the market opened, he guided his traders as they monitored the “glass,” the name they’ve given to data showing offers and bids for the dollar and tenge. Even Centercredit’s Chief Executive Officer Vladislav Lee swings by the floor these days.
Sept. 16 was one of the most difficult days since the free-float was introduced as the exchange rate swung from 277 tenge to near 300 per dollar and back, according to Gabasov, who used his own dollar savings to buy the currency that day. After going through three devaluations as a trader from 1996 through 2012 with various banks in Kazakhstan, he says he’s not feeling too much stress.
Kazakhs will eventually stop “reacting wildly, running out to the exchange kiosks every day,” he predicted.