Piotr Matys, EM FX Strategist at Rabobank, points out that the 9% depreciation so far this quarter makes the Russian ruble one of the weakest EM currencies, but following the initial sell-off the Russian currency regained composure relatively quickly.
“In May the ruble significantly outperformed its peers firming 0.9% at the time when the Argentine peso and the Turkish lira plunged to record lows.”
“Essentially, throughout the latest episode of EM turmoil the ruble has been very stable compared not only to the peso, the lira and the real, but to all other EM currencies.”
“What is the source of this stability? While the substantial current account deficit financed by volatile capital inflows makes Argentina and Turkey particularly vulnerable to a shift in market sentiment towards emerging markets, Russia’s C/A surplus doubled to USD 49.9bn in January-May, according to the CBR.”
“Apart from oil prices rising to the highest level in more than three years, Russia is also benefiting from strong external demand for other goods as reflected in widening trade surplus to USD 15.3bn in April from USD 7.3bn last year. Exports growth of 38.9% y/y in April significantly outpaced the pace of imports of 14.6% y/y.”
“In case of Russia, political risk is very low. After Vladimir Putin comfortably won the presidential election in March.”
“In the coming months scope for the ruble to appreciate against the US dollar is likely to prove constrained due to the prospect of further monetary policy tightening by the Fed which could trigger another wave of capital outflows from risky assets.”
“However, we are cautiously optimistic about the ruble over the long-term horizon forecasting USD/RUB at 56 on the 12 month horizon and to fall further to 50 in 24 months. This view is based on the assumption that Russia will make progress on structural reforms and that oil prices will remain relatively stable. A major source of risk to our cautious optimism is a full-scale trade war.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.