The USD/RUB exchange rate has plunged in the past few weeks. It dropped from a high of 114.45 in December last year to 92 today, making the Russian ruble one of the best-performing currencies. Here are the three main reasons why the ruble has surged this year.
Potential Russian sanctions relief
The USD to RUB exchange rate has plunged as investors hope that the US government will abandon some of the tariffs that exists on Russia. US and Russian teams met in Saudi Arabia on Tuesday and deliberated on how to end the war in Ukraine.
According to media reports, the two sides agreed to continue talks on restoring diplomatic and economic relations. Analysts expect that the final agreement will involve Russia holding to its positions in Ukraine and receiving sanctions relief.
Russia will pledge against future attacks on Ukraine and potentially contributing money towards the reconstruction.
Ending the war in Ukraine and removing sanctions will be good for Russia, as it will unlock billions of dollars in funds and attract more foreign direct investments from the United States.
US dollar weakness and Russia central bank actions
The USD/RUB pair has dropped because of the ongoing weakness of the US dollar. The US dollar index has crashed from the year-to-date high of $110 to the current $106. It has dropped sharply against most emerging and developed country currencies.
At the same time, there is an ongoing divergence between the Federal Reserve and the Central Bank of Russia (CBR) actions. The Fed has been cutting interest rates since 2024, and has hinted that it will continue the process later this year.
CBR, on the other hand, has been one of the most hawkish central banks in the past few months. It hiked interest rates to 21%, up from 7.50% in 2023. It did that as Russia’s inflation continued rising as the unemployment rate fell. The headline consumer inflation data has jumped from 2.3% in 2023 to 9.9% today. It has soared in the past few months.
Therefore, the Fed and CBR divergence has created a good carry trade opportunity. This is a situation where investors borrow money from a low interest rate country and invest in a high yielding one.
Stable crude oil prices
The USD/RUB pair has crashed because of the ongoing performance of crude oil prices. Brent, the global benchmark, trades at $76, while the West Texas Intermediate (WTI) has moved to $72.
While prices remain lower than last year, they have been quite stable. This stability has helped Russia, which makes most of its money from oil and other energy resources like natural gas.
Read more: The hidden costs of Russia’s war: is a cease-fire the only option?
USD/RUB technical analysis: potential death cross
There are odds that the USD/RUB pair will continue falling in the coming weeks now that the pair is about to form a death cross pattern. A death cross happens when the 50-day and 200-day Exponential Moving Averages (EMA) cross each other. The spread between the two averages has narrowed in the past few weeks.
The pair has also moved below the 61.8% Fibonacci Retracement level and the Ichimoku cloud indicator. A drop below that retracement level is notable since it is where most reversals happen.
Therefore, the path of the least resistance for the pair is bearish, with the next price to watch being at 89.2, down by 2.3% below the current level. It will then crash to the full retracement point at 82.42, the lowest level in June last year.
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