Ruble punished by victory. Forecast as of 24.05.2022

Joe Biden’s joy that a ruble was worth less than one American cent turned out to be short. The Russian currency has become one of the best performers in Forex. What are the reasons? Where will the USDRUB go? Let us discuss the Forex outlook and make up a trading plan.

Fundamental Russian ruble forecast for six months

Back to the Future. The largest sanctions in history were aimed at bringing Russia back to the 1990s. In an era when the ruble was rapidly depreciating, prices were skyrocketing, the population was impoverished, and the country was forced to declare its first default in a hundred years. However, the journey in a time machine took the Russians much further into the past than one might have imagined. Russia appeared in those old years when the value of money was determined solely by the demand and supply of goods. As a result, in the conditions of a bullish commodity market, the ruble simply had no competitors.

The foreign exchange rate of any currency is determined by the flows of trading and investment capital. The latter was so great that, before the imposition of sanctions, the ruble responded more to the Fed’s monetary policy or the trends in emerging markets’ currencies than to the changes in the oil prices. Carry trades became a norm, and the USDRUB trend was often determined by the US stock market and changing global risk appetite. The sanctions have deprived Russia of investment flows, making the ruble solely trade-driven. Naturally, the currency of an energy exporting country will outperform any competitor. The ruble has naturally emerged as a top performer in Forex, having appreciated over 20% against the US dollar since the beginning of the year.

Remarkably, the sanctions against Russia have become double support for the USDRUB bears. Along with cutting off investment demand, they led to a significant drop in imports. This reduced the volume of transactions in the domestic foreign exchange market and increased the foreign trade surplus of the Russian Federation from $27.5 billion in January-April last year to $95.8 billion over the same period this year.

Dynamics of Russian ruble trading in currency market

Source: Bloomberg.

Russia has effectively used strict capital control to stabilize the ruble, although the bad experiences of Turkey and Argentina have shown that this is not a good idea. At the same time, just like the US and allies, Moscow went too far. The requirement that exporters must sell 80% of foreign exchange earnings encouraged the bears to go ahead. The supply of dollars and euros was enormously high, and the demand did not keep up with it. Moreover, the requirement to pay for gas in rubles led to an increase in the local currency demand, pressing the USDRUB price even lower. Of course, the drop of the dollar versus the ruble to a four-year low is bad news for the budget, so the restrictions had to be eased.

Reaction of Russian budget to ruble exchange rate


Source: Bloomberg.

USDRUB trading plan for six months

What’s next? I believe the USDRUB will enter a short-term consolidation in the range of 56-61 for two reasons. First, the number of Gazprom customers willing to pay in rubles is growing. Second, mandatory exporters sales have been cut. In the medium term, I expect the USDRUB should go up to the range of 73-75 amid the alignment of the Russian trade balance due to the reduction in export earnings and the partial recovery of import supply chains.

Price chart of USDRUB in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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