5 Facts about the Russian Ruble Every Investor Should Know

The Russian economy has been under constant stress since 2014. The Kremlin’s tough policy on a number of geopolitical issues and the constant threat of new sanctions reduce the investment attractiveness of the region. Such processes are usually followed by the weakening of the national currency.

In 2018, USD/RUB lost more than 20%. The trend is even sadder because the total volume of losses since 2014 has been more than 100%.

If you intend to experiment and work with the Russian currency, you should know the following characteristics of the current situation.

The last chance

Treasury bonds of Russia are still in great demand among investors since they offer relatively high yields. The weighted average trade volume in the money market increased by 14.9% in October 2018 compared to the same period in 2017.

The current monetary tightening process in developed countries signals the end of a cheap money period, so it is obvious to many investors that it may be the last chance of applying the carry trade strategy.

Decreasing correlation between the RUB and oil

If you have heard that the ruble exchange rate correlates with oil prices, then this information is outdated. The increasing value of black gold has been supporting the exchange rate of the ruble for quite a long period of time, but now there is practically no such pattern.

According to the analysis of the oil and USD/RUB dynamics, the correlation coefficient was -0.42 in 2015, which indicates a strong dependence between the assets. In 2016, the ratio rose to -0.35%, and last year this value was close to zero, which presents the independence of the asset prices.

Who sells the ruble

The main seller of the Russian currency is Russia’s Finance Ministry. It was earlier reported that the department plans to have bought the equivalent of 525 billion rubles (7.8 billion US dollars) in foreign currency by the end of the year.

Such actions comply with the budget rule specified in the 2018 budget plan: when the price of the Urals crude blend is above $ 40, all income from the sale of raw materials should be allocated to reserves.

The open game of the Treasury attracted the attention of smaller players. The USD/RUB bullish trend is likely to continue unless the department announces the termination of operations with foreign currency.

Politics

The recent incident Russia seizing Ukrainian ships in the Kerch strait clearly showed that the ruble is very susceptible to such events. Within a few days, USD/RUB rose by 1.5%.

In addition, the United States has not yet introduced the second package of sanctions over an ex-spy Skripal and his daughter poisoning. Now this bill is temporarily frozen, but it may be submitted at the end of this year or at the beginning of the next one.

The new list of sanctions provides for a rather significant blow to the Russian economy, as it prohibits investments by American residents in Russian government bonds. If this measure is taken, the capital outflow from the debt market will be inevitable.

Technical picture

On the daily timeframe, the USD/RUB chart outlined the formation of two ascending channels: global (taking into account the historical high) and local (its formation began in March 2018). The SMA 200 and 365 are located below the current price, which can be taken as a bullish signal.

Now, the USD/RUB pair is at the lower limit of the local channel. If we consider the possibility of opening a long position on the asset, then stop loss should be set behind the last fractal. In this case, the risk on the investment is 4%. The profit potential of such trade is at least 3-4 times higher if we focus on historical highs as a growth target.