CIS-4: Currencies remain supported, selective rate cuts still possible
At a Glance
The desk observes a sustained bullish outlook for currencies in commodity-exporting CIS markets, driven by higher fuel prices and increased carry trade activity. Per the full note , Azerbaijan particularly stands to benefit from elevated hydrocarbon revenues, which bolster its fiscal and current account positions. Kazakhstan presents a mixed outlook, where rising oil prices provide support yet production challenges could limit longer-term benefits. With no high-impact events on the immediate horizon, the focus will remain on regional fundamentals and carry dynamics.
Key Takeaways
- 01CIS currencies, particularly the manat and tenge, benefit from elevated fuel prices.
- 02Azerbaijan's strong fiscal health contrasts with Kazakhstan's mixed outlook due to production challenges.
- 03Rising inflation risks are manageable with selective rate decisions anticipated.
- 04Strong portfolio inflows in Kazakhstan may amplify sensitivity to shifts in carry trade dynamics.
Full Analysis
What the desk is arguing
The desk maintains a positive short-term view on CIS currencies, noting that higher fuel prices and carry trades are pivotal to this outlook. Per the full note , Azerbaijan's strong fiscal position, driven by robust hydrocarbon revenues, positions its currency favorably amidst rising inflation risks.
While Kazakhstan experiences nominal export growth due to elevated oil prices, production cuts might dampen the broader economic impact. The tenge has benefitted from substantial non-resident portfolio inflows, further underpinning the desk's constructive view on KZT's near-term trajectory.
Where it sits in our coverage
Our consensus target stands at 1.075, with a range of 1.04 to 1.12 across several firms. Specific Dec-26 targets include: - jpmorgan: 1.10 - bofa: 1.04
This outlook aligns closely with jpmorgan's target and sits towards the upper end of the spread, indicating an optimistic stance particularly on high-yielding currencies amidst selective rate policies.
How other firms see it
Firms such as jpmorgan are aligned with the desk’s bullish stance on CIS currencies, thereby supporting the short-term bullish outlook. Conversely, bofa takes a more cautious view, indicating potential weakness in their targets.
Investors should also monitor the dynamics of USD/KZT and EUR/USD, as shifts in central bank policies or global risk sentiment could significantly influence these pairs' movements.
What the calendar says
No significant events are scheduled in the immediate future that would affect our analysis of these currencies, maintaining focus on the current macroeconomic landscape and existing trends.
Market Implications
Investors should watch for continued support around the KZT and manat as market interest remains high due to carry trade dynamics, positioning around 1.075 could be pivotal. Grounded fiscal fundamentals could buffer against shifts in risk sentiment.
From the original
Articles CIS-4: Currencies remain supported, selective rate cuts still possible Published 11:31 Armenia Azerbaijan Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Higher fuel prices and persistent carry trade reinforce our constructive near-term FX ou
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