USD/RUB: Undervalued rouble to rebound as geopolitical risks ease and CBR raises rates – MUFG

During June the Russian rouble strengthened against the US dollar from 73.248 to 73.139. Economists at MUFG Bank expect RUB undervaluation to ease alongside paring back of geopolitical risk premium. What's more, the rouble is set to continue to derive support from improving domestic fundamentals

CBR has adopted an even more hawkish stance in response to higher inflation

“The CBR delivered a second consecutive 0.50 point hike in June and signalled clearly that further rate hikes will be delivered in the coming months. Governor Nabiullina does not see the recent inflation acceleration as transitory, but more persistent, and aims to react fast but predictably on rates. The NBR is ready to consider a larger rate hike of up to 1.00 percentage points in July. It would lift the key policy rate into more restrictive territory above their estimate of the neutral policy range between 5.00% and 6.00%.”

“Rising yields are making the rouble relatively more attractive as a carry currency. At the same time, the rouble is deriving support from the higher price of Brent crude oil which has now fully reversed last year’s COVID-19 related sell-off. We expect the price of oil to remain at higher levels in the year ahead supported by strengthening global demand.” 

“Another positive recently has been the scaling back of the elevated geopolitical risk premium that had been priced into the rouble. Expectations heading into the Summit between Presidents Biden and Putin were low, and market participants were at least encouraged by the decision to return their ambassadors to Washington and Moscow.” 

“We continue to expect the rouble to strengthen further from undervalued levels in the year ahead.”


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