Sanctions risks for the ruble come to the fore again

27 January 2021

At the beginning of last week, the Russian ruble consolidated in a narrow range in pairs with the US dollar and the euro, but on Thursday and Friday weakened significantly against the background of increased sanctions risks in relation to Russia. As a result of the five-day trading period, the USD / RUB rate increased by 2.21% to 75.27, while the EUR / RUB rate increased by 3.02% to 91.63. This week the downward trend in the ruble exchange rate continues.

After the arrest of opposition leader A. Navalny, the sanctions rhetoric on the part of Western countries against Russia intensified again. So, last Monday, a meeting of the EU Council took place, at which, among other things, the situation with protests in Russia and the mass arrests of protesters was discussed. The Europeans condemned the police brutality during the rallies and called for the release of Navalny and his supporters from custody. At the same time, no new sanctions from the EU have yet followed, although a number of states, in particular Lithuania and Poland, called for increased pressure on Russia. In addition, on Sunday, the US State Department issued a statement urging the Russian authorities to immediately release Navalny and other participants in the protest movement, noting that the United States will continue to support defenders of human rights and freedoms in Russia, or wherever they are threatened. … In addition, in the States, Janet Yellen was appointed to the post of Minister of Finance, who also advocates tough sanctions against the Russian Federation.

Thus, it is highly likely that the sanctions topic will actively develop in the coming months, which will contribute to the expansion of the country risk premium in the Russian ruble exchange rate. It is worth noting that CDS on Russian government bonds have already reacted with growth to the events of last week and are now near the highs since the beginning of 2021.

As for the external background, the coronavirus pandemic remains the focus of investors’ attention. Strict quarantine measures continue to be in place in many countries, limiting the growth potential of the global economy. At the same time, the rate of vaccination in the world is still insufficient for the formation of herd immunity. According to the World Health Organization, in the coming months, countries will not be able to reach the required level of vaccination to stop the transmission of the virus from person to person. Against this background, at the beginning of this week on the global markets, there was a tendency to reduce risk appetite, which puts additional pressure on the ruble.

It is also worth remembering that since January 15, the Ministry of Finance of the Russian Federation has switched to currency purchases within the framework of the budget rule mechanism. As a result, the ruble has lost support from regulators, which they have been providing it for over nine months. In this regard, with a further escalation of tension in relations between Russia and Western countries and / or a general deterioration in the external background, one cannot exclude sharp surges in the volatility of the national currency rate.
In addition, this week the support factor for the ruble will weaken in the form of currency sales to pay taxes to the budget. So, on January 25, the companies paid VAT, MET and excise taxes, and now they only have to pay income tax until the end of the month.

Of the macroeconomic indicators for Russia, it should be noted the publication last week of data on the consumer confidence index for the IV quarter. Thus, the indicator decreased by 4 pp to -26 points.

At the same time, the current account balance of the Russian Federation increased in the same period by $ 2.3 billion, to $ 5.5 billion, but remained almost two times lower than the value for the same period in 2019.

It is also worth noting the data on industrial production in Russia published yesterday. At the end of December, the indicator decreased by 0.2% YoY, which was the best result since April 2020.

This week in the Russian Federation will become known data on the producer price index, retail sales, unemployment and GDP. In addition, the meeting of the World Economic Forum in Davos, at which Russian President Vladimir Putin will also speak, will be of interest.

On the daily chart of the USD / RUB rate, the falling wedge pattern has been worked out. At the moment, the “fast” stochastic line has already reached the overbought zone, and therefore the potential for further growth in quotes looks limited.

The EUR / RUB quotes are testing the 91.5 level for a breakout upward. At the same time, the “fast” stochastic line has reached the overbought zone, which indicates a limited upside potential for the instrument in the short term and the likelihood of rate consolidation near the reached level.

This information is not investment advice.

Libertex [CPS] WW



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