USD/RUB: Russian ruble could experience a modest recovery by the end of quarter – Wells Fargo

Analysts at Wells Fargo continue to forecast a weaker Russian ruble over the longer-term, with risks around a higher USD/RUB exchange rate. In the short-term they believe the current depreciation has overshot and the ruble could experience a modest recovery by the end of Q1-2022. 

Key Quotes: 

“Given the ruble has depreciated 23% year-to-date, our framework suggests the ruble has sold-off an "excess" 3% and could experience a modest recovery in the short-term. In addition to our model, we also feel capital controls as well as the mandate for Russian-based companies to sell hard currency should provide near-term support to the currency. In that sense, we are adjusting our Q1-2022 USD/RUB exchange rate view and forecast a move to RUB94.00 by the end of the first quarter to reflect a 3% recovery in the currency.”

“Pre-conflict, we had a view that the Russian ruble would gradually weaken against the U.S. dollar over the course of 2022 and into 2023 as a result of broad U.S. dollar strength amid tighter Fed monetary policy. We maintain that view, but add now that we expect CBR policymakers to begin lowering interest rates as the inflation shock begins to recede, the ruble depreciation should be a little quicker than we previously anticipated. To that point, we now forecast the USD/RUB exchange rate to move to RUB100 by the end of 2022 and to reach RUB104 by the middle of 2023.”

“We should note again, however, our updated USD/RUB forecasts are highly dependent on a gradual easing of geopolitical tensions in which we have no particular visibility into. Should tensions escalate further or if sanctions target Russia's energy sector, we would expect the ruble to sell off much more significantly, and continuously hit new lows against the dollar.”