Oil Supercharges the Kazakh Tenge, and the Gains May Not Be Over

(Bloomberg) -- Crude is greasing the wheels of one of the world’s best-performing exotic currencies.

Kazakhstan’s tenge, which has racked up the biggest advance among its thinly-traded counterparts the past six months, is poised for more gains as demand increases following the rally in the price of oil, the former Soviet republic’s No. 1 export, according to BMI Research. Bank of America Merrill Lynch is also a fan, saying earlier this month that the tenge could climb 15 percent in 2017 thanks to elevated crude prices.

The tenge has strengthened more than 6 percent since mid-August, putting it well in front of its nearest competitors -- the Lesotho loti and Swaziland lilangeni -- when it comes to exotic-currency gains, data compiled by Bloomberg show. Following a seven-day rally, the tenge closed at 318.80 per dollar Friday, close to its strongest level since the end of 2015.

After breaking resistance at 326 per dollar in late January, there are now no clear near-term resistance levels between the tenge’s spot rate and 195 per dollar, the level the currency traded at before the central bank shifted to a free float in 2015, analysts at BMI, a unit of Fitch Group Inc., wrote in a research note dated Feb. 16.

Given that oil prices probably won’t rise much in the near term, the scope for further gains in the tenge could be circumscribed, according to BMI. The analysis group forecasts crude averaging $57 a barrel in 2017 and $60 in 2018. Brent has advanced 14 percent over the past six months and traded at $55.80 a barrel as of 11:35 a.m. Hong Kong time on Monday. U.S. drilling activity poses a headwind for oil prices.

Oil output in Kazakhstan, central Asia’s largest energy producer, has picked up this year with the resumption of pumping at the Kashagan field, which is set to push out 370,000 barrels a day by the end of 2017, according to its operator, North Caspian Operating Company NV. In January, Kazakhstan produced 1.67 million barrels of oil a day.

Read more about Kazakhstan and its part in the OPEC deal here.

The tenge will appreciate toward 310 per dollar by the end of this year, before averaging 302.50 in 2018 and 290 in 2019, BMI forecasts.

To contact the reporter on this story: Will Davies in Hong Kong at wdavies13@bloomberg.net.

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Emma O'Brien