BofA sees Kazakhstan tenge 1-1.5% overvalued on seasonal risks By Investing.com

Bank of America says the Kazakh tenge is 1-1.5% overvalued, with near-term support from high oil prices and seasonal factors likely fading over the next 2-3 months. The bank expects the first rate cut on July 24 and suggests waiting for summer seasonality to pass before entering long-bond or receiver trades. The note also flags tighter liquidity conditions in the bond market and potential pressure on emerging-market currencies.

Analysis

The key setup is not the currency call itself but the cross-asset timing mismatch: the market is being paid for a near-term oil-driven inflation scare while the real monetization opportunity sits in rates. That argues for owning duration only after the seasonal support in the tenge rolls off, because the highest-probability path is a brief window of sticky FX support followed by a drift weaker as commodity tailwinds fade and local carry stops dominating.

Second-order, the bank’s note implies a cleaner expression in rates than in spot FX. If the first cut is indeed approaching, the best risk/reward is likely in receivers or long local duration initiated into any summer FX strength, not chasing the currency weaker immediately. The liquidity comment matters: bond market depth is still improving but not yet robust enough for a fast-money trade, so the more patient position likely outperforms over 4-6 months while the NDF can reprice faster and with more noise.

The contrarian risk is that EM beta breaks first, which would punish the tenge even before seasonal weakness arrives and could make the “wait” recommendation too conservative. But if oil keeps inflation fears elevated without a broader EM selloff, the move is likely overdone in FX and underdone in duration: a better entry for longs is on a pullback after the seasonal turn, rather than at current support.

Key Decisions for Investors

• Initiate a staged receiver / long duration expression in KZT rates 6-8 weeks ahead of the expected first cut, with a 4-6 month hold; target is to capture both the policy pivot and post-seasonality weakening in the currency.
• Avoid chasing spot USD/KZT higher immediately; instead wait for seasonal support to fade and look to buy USD/KZT on a pullback if EM FX weakens broadly, since the cleaner asymmetry is later in the summer.
• Prefer local bonds over the KZT NDF if liquidity allows: use the bond trade for a 6-month horizon where spread compression and policy repricing can compound, versus a shorter, noisier NDF expression.
• Pair trade idea: long Kazakhstan duration / short a higher-beta EM FX basket proxy over the next 2-4 months, betting that local policy easing is more durable than transient commodity support.
• Tactical risk control: if EM FX enters a disorderly selloff in the next 2-6 weeks, cut the delayed-entry plan and switch to a defensive USD/KZT long, because the seasonal fade could be overwhelmed by macro beta.