Wednesday , June 7 2023

Loose rubles. Why do Russian currencies increase when oil prices go down?


Moscow, November 18 – RIA Novosti, Maxim Rubchenko. Last week it was an incredible event in the domestic market. The price of rubles was stronger than the dollar as oil prices plummeted. What happens next in the RIA Novosti's data when the Russian currency removes the quotation marks from "black gold" and the ruble exchange rate?

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Loose rubles

Earlier this week, world oil prices experienced a substantial collapse. On November 13, prices dropped to $ 64.61 from $ 69.68. However, unlike the long – standing tradition, the Russian currency remained strong against oil. The dollar fell to 68.86 rubles on Thursday from 68.28 rubles on Monday.

Short-term ruble collapse from oil. For example, in November 2015, "black gold" was lost at a price of 10% and Russian currency fell by only 2%. Experts say rubles have vanished oil. However, the traditional connection was restored shortly.

Another correlation failure was the steady decline in oil prices in July 2016 (up to 5% a day), while the Russian currency remained stable.

The gap between oil and foreign exchange markets was officially announced in March this year. Russian bank president Elvira Nabiullina said the reliance on Russian oil and ruble exchange rates "declined more than 10 times."

"The elasticity of the exchange rate against oil prices between 2015 and 2016 is close to unity, that is, the ruble fluctuation almost 100% of the movement of" black gold "price." Now, according to the central bank calculations, ".

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Simply put, a 10% increase (or decrease) in oil prices should increase the ruble price by 1% (or weaken accordingly). But now we have seen something fundamentally different: rubles and oil were moving in reverse phase.

The speculator fled.

Strangely, the first reason for the ruble's non-standard behavior is the threat of heavy anti-Russian sanctions. In fact, speculators have avoided the Russian market since August, when they learned about the US Congress' drafting of two draft legislation on restrictions on Moscow. So no one can hear the news of oil prices and shake the currency market.

"Clearly there is no major speculative game against Rubles today," says Artem Deyev, principal analyst at Amarkets.

In the absence of speculators, the main driver of currency traders is macroeconomic indicators. And with this, Russia is doing well right now. Because the federal budget of the year was written on the basis of oil value at $ 40 a barrel.

The index, which fell below $ 65 a barrel, will not affect the stability of the Russian economy. As a result, investors did not fly due to the ruble.


The second reason is that at least by the end of the year, the law on sanctions will not be passed. One of the authors of this document, Senator Bob Menendez, announced on Tuesday.

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To him, Congress does not have time to impose sanctions this year. US Congressmen will focus on government spending, appointment of judges and draft agricultural legislation.

"The introduction of the second round of sanctions for the addiction of Skripale is postponed indefinitely. The first restriction that came into effect on August 6 prohibited the sale of weapons and dual-use technology to Russia as well as loans from US government agencies .

The second can affect lending through international structures (the World Bank and the IMF), suspend flights to the United States and almost completely stop trading between the two countries.

Donald Trump himself has the right to choose exactly what sanctions to enforce on this list. Also, he can not introduce or cancel at any time if he thinks these restrictions are harmful to the interests of the United States.

Obviously, the White House will raise a new sanctions issue on "braking gear". In any case, the State Department announced the start of a "consultation with Congress on the following actions", stressing that the bill does not set a specific deadline for the decision.

And since Congress has already decided on major work areas for the upcoming months, new sanctions will soon follow and be purely symbolic. For example, the IMF and World Bank lending ban would not work. Moscow has not needed such loans for many years.

These considerations have attracted new investors in the Russian market. Experts note the emergence of large currency sellers that have raised the dollar offer for up to two years.

At the beginning of Thursday evening talks, the Moscow Exchange's dollar-for-dollar application for registration for the dollar has reached 400,000 per 1,000 dollars since January 2017.

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Ruble is investing in Russian sovereign debt, with investors received in the sale of currencies making a very attractive return on the backdrop of geopolitical risk reduction.

For the first time in four weeks on November 14th, the Treasury has filled federal loan receivables with 5 billion rubles and demand has more than tripled its supply.

Fair process

According to experts, Russian assets are unreasonably cheap, so demand for Russian assets will increase at least until the end of the year. This is a good incentive to further strengthen the ruble.

"The current underestimation of the Russian currency is mainly due to two factors in the last seven months, weakening developing nations and sanctions history," said Mikhail Poddubsky, senior analyst at Promsvyazbank. The dollar will also return to relatively fair levels. "

According to Poddubsky, the current exchange rate is about 63 rubles per dollar, with no oil and Treasury foreign exchange purchases.

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