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As globalization has increased dramatically in recent decades, businesses are increasingly dealing with suppliers and customers around the world. As a result, the foreign exchange market has also become more open, exposing companies to receivables and so-called “exotic currency” risks. We will look at what exotic currencies are, what risks exist when trading such currency pairs, and what currency to buy in 2024.
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What are exotic currencies?
The term ” “exotic currency” is a catch-all term for any type of currency or currency pair that is unusual to deal with. The term is used interchangeably with emerging market currencies and more generally with smaller currency pairs with low liquidity. Traders use this term to differentiate these currency pairs from more widely traded, widely used and highly liquid major currencies such as the euro or US dollar.
Unlike stock markets, where index providers such as MSCI classify countries into “developed markets”, “emerging markets” and “frontier markets”, there is no clear definition of what is considered “exotic” in currency terms. An exotic currency pair is somehow in the territory of emerging and frontier markets and is generally illiquid and lightly traded.
Most Popular Exotic Currency Pairs
Typically, secondary pairs with smaller emerging market currencies are classified as exotic. While some people might classify the Turkish Lira or Brazilian Real as a minor currency pair against the US dollar, trading a minor pair such as trading the British Pound against such a currency would most likely be classified as an exotic currency, for example TRY/GBP.
A few of the most popular exotic currency pairs in the forex market include GBP and EUR pairs traded against TRY (Turkish Lira), SGD (Singapore Dollar), ZAR (South African Rand) and BRL (Brazilian real).
Some platforms also classify minor trading pairs in developed markets or European currencies as exotic. However, this is relatively rare. Currencies such as SEK (Swedish krona), NOK (Norwegian krone) and DKK (Danish krone) are usually classified as “Scandinavian” while non-euro pairs in emerging markets in Europe such as CZK (Czech krone) and PLN (Polish zloty) would be considered “exotic”. For Russian traders, the currencies of the countries of the former Soviet Union and other neighboring countries are more interesting.
Exotic Currency Trading Volume
Exotic currencies, both from emerging and frontier markets, tend to have relatively low liquidity compared to more established international currencies. According to a survey conducted by BIS (Bank for International Settlements), these pairs account for only a very small percentage of daily transactions in the global Forex market, which is dominated by a large share of US dollar, euro, yen and pound sterling pairs. Low trading volume therefore results in higher transaction costs, wider bid-ask spreads, and ultimately greater risk for people wishing to trade in these currencies.
Exotic currency exchange rate forecast for 2024
Tenge exchange rate forecast for 2024
Kazakhstan’s currency has seen a wide range of trading throughout 2023, and this trend can be expected to continue into next year. At the end of the year, the tenge strengthened, the dollar dropped to 456 tenge within a week. Data from the Kazakhstan Association of Financiers indicates that the tenge was supported by a favorable external context associated with rising oil prices, a falling dollar, lower US bond yields and increased risk appetite in global capital markets.
During 2023, there was a significant change in the exchange rate of the national currency of Kazakhstan. The dollar fluctuated in the range of 445-480 tenge throughout the year, demonstrating a wide trading range. In the summer, the national currency strengthened strongly against the main currencies, but with the beginning of autumn it weakened. According to the National Bank, in the second quarter of last year, the tenge rose by 3% against the dollar, from 462.61 in January to 448.54 in June. In July, the dollar exchange rate fell to 445.20.
Autumn brought excitement for the tenge, causing a surge in trade pressure and balance, as well as increasing interest in investment abroad. Global trends and fluctuations in the world market motivate investors to move their assets. By mid-October, the tenge exchange rate soared to $480, but starting in November it began to gradually return.
Attention should be paid to reducing inflation, since if price growth slows, the Central Bank will begin to reduce the main rate, which will reduce the attractiveness of tenge assets for investors and lead to a weakening of the national currency. Another worrying factor for the tenge is the fall in oil prices. The price of black gold is declining due to concerns about the slowdown in the global economy and excess supply in the market. According to experts, the current oil price is already below the target price prescribed in the state budget for the period 2024–2026. The forecast for 2024 voices a possible adjustment of the state budget in the near future, which will require additional financial redistributions from the Economic Support Fund.
According to DAMU Capital Management estimates, the tenge to dollar exchange rate in 2024 will be in the range of 480-500. Given the high level of inflation in the Republic of Kazakhstan, a potential weakening of the tenge by 10% during the year would be considered acceptable. Thus, the prospect of a 10% loss of purchasing power and a weakening currency within that range would be absolutely advisable. Base rates in Russia can influence the tenge exchange rate, but are not the only factor. Experts warn of a possible poor state of the Russian economy in 2024, which could lead to a devaluation of the ruble and its reduction to 4-4.5 tenge per ruble.
The price decline in China is of particular concern, as this could lead to slower economic growth and reduced consumption, which in turn will affect commodity prices. If the National Bank decides to implement a conservative and prudent monetary policy, and the volume of foreign exchange liquidity remains at the required level, the tenge will retain its stability. A year is a huge period of time, and in conditions of global instability, expectations can be very diverse. The main forecast is that the dollar exchange rate may fluctuate in the range of 440–485 tenge, and the euro exchange rate in the range of 470–520 tenge.
External factors, such as Russian politics and economics, have a local impact on Kazakhstan. However, subject to successful modernization and investment in various sectors, the tenge will be able to maintain a neutral exchange rate. Experts recommend long-term reforms, economic diversification, infrastructure development and investment in social spheres to ensure the stability of the national currency.
Dirham exchange rate forecast for 2024
UAE Dirham is one of the most reliable and stable currencies in the global financial market. The country is known for its rich economic system; its currency also reflects this strength. Besides being pegged to the world’s most significant currency, the US dollar, the UAE dirham is also fueled by Dubai’s robust economic system, oil sector, thriving business and thriving tourism sector. For these reasons, experienced traders believe that the dirham is a profitable asset for anyone investing in the foreign exchange market. If you’re looking to add the currency to your portfolio, here’s the potential performance of the dirham next year.
The latest statistics show that the UAE’s economic status is estimated to increase by 4% in 2024, driven by the recent exponential growth of the country’s non-oil sector. The UAE’s greatest strength over the years has been its oil sector. However, the government produced 7.3% less crude oil in mid-2023 and recently announced it would cut production. Despite these developments, the UAE is progressing in developing its economy.
The UAE’s economic growth is the fourth largest in the Middle East and currently has a gross GDP of $499 billion in 2023. The leading non-oil contributions to the country’s economy are currently real estate, tourism, financial services, business, and trade. Despite having oil reserves and a sovereign wealth fund of over $1.3 trillion, the country is expanding its economy into other sectors such as the global trade market, tourism and financial services.
The dynamic economy of the UAE has been a leading export market for major economies such as the US, Europe, Asia and Africa since 2009. This also makes the AED currency a target for forex market investment and CFD trading among investors. The relationship between a country’s economic condition and its currency is often directly proportional. These two factors have a clear cause and effect relationship as the strength of the economy directly affects the exchange rate of a currency. Inflation, interest rates and capital flows are economic factors that affect the exchange rate of a currency.
The latest data shows that Dubai’s inflation rate fell to 3.6% in the first quarter of 2024 and to 4.6% in the fourth quarter of 2023. Current forecasts are for inflation to drop significantly or stop in 2024. The country also exploits its non-oil sectors. to increase your GDP. Amid the recovery from the pandemic, there is also news that Dubai has cleared its Dh29 billion debt by the end of 2023. The repayment combines market and private debt and points to strong economic growth post-pandemic. The country is benefiting from recovering tourist arrivals, which have improved significantly since the recovery from the pandemic. Real estate is also an important factor, and Government of Dubai-linked enterprises (GRE) are contributing to the country’s ongoing economic recovery. Overall, economic conditions have a positive outlook and the dirham currency is expected to appreciate in value by 2024.
Global US Dollar to AED conversion data indicates that the currency has declined over the past year. However, the dirham has a positive outlook for 2024, with forecasts suggesting a possible growth of 66.698% by next year. This means that between now and November 2024 the price could rise from Dh3.672 to Dh6.6669. AED/USD is a great investment.
Turkish lira exchange rate forecast for 2024
Global bank analysts forecast the Turkish lira will weaken by about one-third against the dollar in 2024 and hit a new all-time low, as sharp rises in interest rates do little to curb domestic inflation or persuade Turks hold a weak lyre.
Given better-than-expected domestic demand performance, S&P Global has updated its growth forecasts for the Turkish economy for 2023 and 2024. The group raised its growth forecasts for Turkey from 2.3% to 2.4% in 2024 and from 3.5% to 3.7. % in 2023. Growth estimates revised from 2.9% to 2.7% for 2025 and from 3.1% to 3.0% for 2026. According to the assessment, Turkey’s average inflation rate is expected to be 53.7% this year and 50.3% next year, with estimates for 2025 and 2026 being 29.1% and 18.0% respectively. S&P forecasts the Turkish lira to trade at 40.0 against the US dollar at the end of 2024, 42.0 at the end of 2025 and 43.0 at the end of 2026.
Investment bank JPMorgan has backed a rebound in the Turkish lira as one of its key emerging markets bets for 2024. “The first theme (of 2024) is recovery deals,” JPMorgan said, singling out Turkey along with Poland, South Africa and Israel. “We are adding short 6-month TRY forwards to our existing TRY overweight,” they added, referring to the bet on the Turkish lira rising against the dollar.
ING forecast the Turkish lira to weaken in 2024, but not as much as forwards expected. The Dutch bank forecasts that the Turkish lira will trade at 33.00 Turkish lira per US dollar in the first quarter of 2024 and decline to 38.00 by the end of the year. This bearish Turkish lira price forecast is based on a high fiscal deficit target despite efforts to reduce inflation: the 3% threshold. Given this, the budget forecast for next year does not fully help the CBT in the process of deflation.”
Armenian dram exchange rate forecast for 2024
According to forecasts of the Eurasian Development Bank, the dram exchange rate may reach 414 drams per dollar by 2024. The EDB Analytics Directorate, which presented the Macroeconomic Forecast 2024–2026, emphasized that a decrease in export rates and an increase in imports due to active domestic demand will be the main factors influencing the national currency exchange rate.
It appears that inflation could reach around 3.6% in 2024, up from 0.3% in 2023. It is forecast that price growth in the first half of 2024 may be below the target level set by the central bank, due to the impact of deflation on global commodity and resource prices, as well as lower inflation expectations. An increase in domestic demand against the background of the ongoing stimulating fiscal policy will create conditions for a subsequent increase in the inflation rate to the desired level. It is assumed that by the end of 2024 the refinancing rate may be reduced to 8% per annum.
Weak price growth and sluggish economic movement until half of 2024 will allow the key interest rate to continue to be reduced. In the near future, stable inflation and stable economic growth are expected, which will lead to maintaining the key rate at around 8% in 2025-2026. According to the forecast of the Eurasian Development Bank (EDB), the average exchange rate of the dollar to the Armenian dram in 2024 will be 414 drams. The EDB announced an increase in financial flows, foreign injections and an increase in the flow of tourists, which will contribute to the strengthening of the national currency, but a slight drop in the value of the Armenian dram is predicted.
Hong Kong dollar exchange rate forecast for 2024
The United States Dollar (USD) is under pressure due to concerns about slowing growth and the possibility of interest rate cuts by the Federal Reserve, according to the latest forecasts and currency market updates. A disappointing ISM services PMI release contributed to the weakening of the US dollar. Federal Reserve Chairman Jerome Powell’s upcoming testimony before Congress could further impact the US dollar as more specific timing of interest rate cuts is expected, which could cause the US dollar to fall.
On the other hand, the Hong Kong dollar (HKD) is expected to be relatively stable in February. The Hong Kong Monetary Authority (HKMA) maintained its monetary policy and interest rates, contributing to the stability of the HKD. Despite some weaknesses in Hong Kong’s economic performance, the Hong Kong dollar has shown resilience compared to other major Asian currencies. The HKMA’s recent hold on interest rates in response to Federal Reserve decisions indicates a strong stance on policy going forward.
The US dollar to Hong Kong dollar exchange rate, currently around 7.8245, is trading in a stable range near its 3-month average. With the dollar facing downward pressure and the Hong Kong dollar expected to remain stable, currency analysts suggest monitoring further developments in US economic indicators, potential interest rate cuts and geopolitical tensions to gauge future movements in the US dollar-Hong Kong dollar exchange rate.
Which currency to buy?
Exotic currencies are of interest to traders, firstly, as an opportunity to diversify assets and, secondly, because of the potential for their exchange rate to rise or fall. Among all the exotic currency pairs discussed in this article, the Arab Dirham (AED) has the greatest potential for growth, and the Turkish Lira (TRY) has the greatest potential for decline. Trade AED and TRY with leverage up to 1:10000 with FxPro.
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