The tensions in the Donbass area near the border of Ukraine and Russia represent a new tail risk for the RUB. As such, USD/RUB has moved higher. The latest US sanctions will have limited economic impact on Russia but the risks of even tougher sanctions will continue to weigh on RUB, economists at Danske bank appraise.
Risks related to the Ukrainian situation remain high
“Rapid escalation still seems unlikely, as in reality, Russia has little to gain by attempting invasion of Ukrainian territory. The Kremlin has mentioned domestic security as a reason for strengthening the military presence in the area, but the economic damage caused by possible new sanctions would outweigh any possible gains Russia could achieve in Eastern Ukraine.”
“The Biden administration seems to take a harsher approach on Russia than Trump did. Latest US sanctions block US institutions from investing into newly issued Russian sovereign debt, but the economic and market consequences may not be too big as the financing needs of Russia are limited going forward. However, the risk of further escalation in the Donbass area and US criticism of the treatment of Navalny will keep risks of new sanctions alive.”
“Despite our generally bullish view on RUB given the strong economic fundamentals, Kremlin’s strategy of maintaining constant pressure on Ukraine (and the west) seems to lead Russia from one conflict to another, meaning the sanctions discount in the RUB is here to stay. As such, we revised our EUR/RUB forecast higher to 89 in 1-3M, 84 in 6M and 83 in 12M.”
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