The Russian ruble has surged this year as the odds of a deal with Donald Trump rose and as it became a viable carry trade currency. The USD/RUB exchange rate bottomed at a low of 81 this month from the year-to-date high of 113.63. So, what next for the Russian ruble this year?
Carry trade opportunity
The Russian ruble has done this year because of the ongoing interest rate differential between the United States and Russia. In Russia, the central bank has hiked rates to 21% from last year’s low of 7.50%, making it one of the most hawkish central banks globally.
These rate hikes have led to a big increase in Russia’s bond yields. The 10-year yield rose to 15.16%, while the five-year has moved to 15.52%.
Meanwhile, in the United States, rates have been moving in the opposite direction. The Fed slashed rates from 5.5% last year to 4.50% today, and the committee has signaled that it will deliver more cuts this year if inflation keeps falling.
Therefore, the spread between Russia’s and the US’s interest rates has widened, and this trend may continue. Besides, data shows that Russia’s inflation has continued rising, and currently stands at 10.1%, up from 2.3% last year.
This trend has created a good carry trade opportunity, where investors borrow money from a low-interest-rate country and invest in a high-rate country. In this case, investors are borrowing the United States and moving cash to Russian assets.
The challenge, however, is that the Russian economy is hard to get into because of the sanctions implemented by the United States and the European Union.
Read more: USD/RUB forecast: here’s why the Russian ruble is soaring
Russia and US peace talks
The USD/RUB exchange rate has crashed because of the ongoing peace talks between the United States and Russia on how to end the war in Ukraine.
These talks have yielded an agreement on a ceasefire in some regions. Analysts believe that Donald Trump will be ready to do a deal with Russia because he is unwilling to fund the war for long.
A potential deal will likely have the US ending some sanctions on Russia, which will help to boost the country’s economy. It is unclear whether foreign investors will be keen to invest in Russia when sanctions are removed.
Read more: USD/RUB analysis: 3 reasons the Russian ruble has surged
USD/RUB technical analysis
USD/RUB chart by TradingView
The daily chart shows that the USD/RUB pair has been in a strong bearish trend in the past few months. This sell-off pushed the pair from a high of 113.6 in January to 84.50 today. It has moved between the lower and middle lines of the Bollinger Bands indicator.
The pair remains below the 50-day and 100-day moving averages. Most notably, it is hovering at the key support at 81, the lowest swing in 2024. Therefore, the pair may keep falling as sellers target the next key support at 80.
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