USD/RUB to trade below 70 until global economy returns sustainable growth path – Nordea

The RUB lost more than 2% in one day at the end of last week and returned to levels of late May. USD/RUB is trading at 69.38 and analysts at Nordea think the short-term ruble risks are tilted to the downside amid high uncertainty around the global economy and don’t expect the pair to reach the 70 level until the global economic activity start to rebound considerably.

Key quotes

“We believe the RUB will stay near 70 versus the USD until we see a clear reason to believe the world economy is back on a sustainable growth path.”

“In normal times, the increase in the oil price above USD 42.4/bbl (base level for the Russian budget) would force the Bank of Russia to buy FX, according to the budget rule. However, a drop in the volume of oil production due to the OPEC+ deal messed up the entire mechanism. The CBR may continue to sell FX while the Ministry of Finance is trying to make up for the dwindling oil revenues. This is a RUB-positive factor.”

“Increased demand from non-residents for the Russian government bonds (OFZ) in the anticipation of 100 bp rate cut helped the RUB to get stronger in April and early May. However, the latest placement has shown that OFZ is no longer such an attractive asset for non-residents as the rate cut is already priced in. Thus, this factor will not boost the RUB further and the RUB is to trade in line with other risky assets.”