The Trump Reset with Russia will Impact the USD/RUB Pair…..
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The above chart represents the performance of the USD/RUB currency pair since March 2016. A quick look at the chart confirms the trend: the USD has depreciated significantly against the Russian ruble, despite periodic appreciations here and there. This begs the question: Why is the dollar – one of the strongest performing currencies over the past 1 year – performing so poorly against the heavily sanctioned Russian Federation and its beleaguered economy? The truth of the matter is that the Russian economy has been performing strongly since the lifting of sanctions against Iran, and the reversal in oil prices.
When oil was trading at around $25-$30 per barrel, and natural gas was cheap, Russian revenues from its energy sector were anemic. Sanctions against Russia have largely been ineffective, given that Russia supplies oil and natural gas to Europe and elsewhere. The Russian currency has appreciated from a 52-week low of 80.52 to its current level of 59.2571. This is a significant improvement in the buying power of the RUB. The term ‘Russian Bear’ is often bandied about to describe the superpower, and it is warranted. Russia maintains its position as a global superpower with tremendous military strength, economic strength, and buying power. The Russian economy and its currency are particularly sensitive to oil market volatility.
Let’s Take a Quick Look at Why the Ruble Has Appreciated so Strongly
In December 2016, the Russian central bank decided to maintain interest rates at 10%, but it alluded to the possibility of cutting rates in Q1 or Q2 2017. In the 1 month since the US presidential elections on November 8, the ruble appreciated by 5% against the greenback. Part of the optimism for the Russian currency is Donald Trump. He has been reluctant to call out Putin for war crimes or other heinous acts. This has prompted a media frenzy that Trump wants to befriend Vladimir Putin as he takes on Isis in the Middle East and confronts the strategic terror threat, Iran. If Russia decides to cut interest rates, the currency will weaken, and we will see a reversal in the current trend.
