The Russian ruble lost about 30% against the euro and more than 20% against the dollar, being in the top five, it is necessary to dissect the factors that contributed to such a sharp failure to determine the future prospects of the ruble exchange rate.
What will help the ruble exchange rate in 2021
The ruble was negatively affected by the collapse of prices and demand for hydrocarbons, as well as (for a short time in the first half of the year) fears of a deep and prolonged economic crisis and the solvency of states and companies.
By November, the old enemy returned to the ruble – fear of sanctions. Fears of the so-called blue wave (the victory of the Democrats in the presidency, as well as their majority in Congress and the Senate) put pressure on the quotes of the Russian currency until the end of October, returning it to the region of historical lows, despite noticeably higher prices for oil and gas than in March this year. Further, throughout November and three weeks of December, the ruble was recovering steadily. It was a real rally that strengthened it by 10% against the dollar.
In 2021, the ruble will be helped by a global economic recovery and massive government incentives promising to fuel demand for raw materials and energy, as well as restoring demand for them. In addition, in contrast to the beginning of 2020, the Russian currency approached the end of it fairly “oversold”. All this promises to work in her favor.
Investors may also like the budgetary discipline of the Russian government, which they clearly did not value in previous years. But if the focus of the markets shifts to how governments cut their debt burdens, the ruble could be one of the best choices.
Negative factors for the ruble exchange rate
Negative factors are the sanctions risks, which quite persistently returned to the political agenda at the end of the year and managed to have a visible impact on the Russian market. Further escalating pressure on this issue makes macroeconomic and fiscal indicators meaningless, making the ruble a target for decline.
In the first half of the year (with the exception of January), the ruble, on average, feels confident, if there are no cataclysms in the form of sanctions or a collapse of financial markets.
Without new “black swans”, the trend towards a cautious recovery of the Russian currency is able to develop, leading USDRUB up to 68-70, a euro – up to 88-90 in the first half of the year.
In the second half of the year, the ruble is often under pressure, but in combination with a gradual recovery in world trade and industry, USDRUB is quite capable of rising to only 72 or even staying in a range around 70. EURRUB is still able to rise above 92 again.
EURUSD should be expected to further grow to 1.25 in the middle of the year and 1.28 at the end of 2021. The recovery of the single currency’s position against the dollar promises to become a trend for the next few years, and 2021 will be just one of the first impulses of a multi-year downward trend.