The Vague Future of the Russian Ruble

The "profitable" Russian ruble is trying to strengthen its position against the US dollar. The situation in the internal currency market in Russia is still affected by the external environment and speculative intentions of investors. Although the prospects of further strengthening of the Russian currency are increasingly obscure, analysts believe that the price of 29 rubles per US dollar is unattainable in the near future.

In the beginning of this week, the euro exchange rate rose to $1.4966 against the US dollar, but the growth did not continue on Thursday and Friday. Alexander Kuntsikevich, financial analyst of FxPro, said that two years ago the euro was thrown back six figures down from this level for four months.

Analysts from Kalita-Finance told that macroeconomic statistics supported the European currency in the beginning of this week. For example, in August production in the European Monetary Union grew by 0.9%. The indicators have been growing for four months. In annual terms, the industry lost 15.4%, the minimum annual decline since last December.

The US statistical data was not bad either. Last week the number of people who applied for unemployment insurance for the first time decreased again and reached the minimum since January 3rd of 2009. The number of 514,000 applications is lower that it was expected.

The players were inspired by the positive industry data released by New York Federal Reserve Board. On Thursday, the US Labor Department released its report on consumer prices for September which rose 0.2% compared to the previous month. Annual inflation level has been negative for the last seven months, and amounts to – 1.3%.

The prices in the European Monetary Union have not changed compared to the previous month. Annual consumer price index is also negative, - 0.3%. Deflation in the key economies will still indicate the commitment of monetary officials of a number of countries to preserve unprecedentedly mild conditions of credit policy.

The inflation data heated up the appetite for risky currencies. The head of the European Central Bank announced on Thursday that he believed that excessive volatility in currency exchange markets is a very negative and adverse trend for the restoration of the world economy. Trichet once again emphasized his support of the “strong US dollar” promised by the USA. Lately, representatives of the European zone are concerned with a rapid strengthening of the euro which makes the export of the currency block more expensive, and therefore, less competitive.

Another event important for Russia occurred this week. Oil broke the limit of $65-75, and touched the level of $78 per barrel. Despite the optimism in regard of the world economy and the pessimism in regard of the US dollar, oil could not break $75 limit since June.

Alexander Kuntsikevich said that the event became the basis for the trade session. At the opening of the trade session currency basket dropped to the level of 35.45 rubles, but was quickly returned to its normal level of 35.80 rubles. The Russian ruble managed to grow against the US dollar (29.33 against 29.45 by the end of the session), and the euro for a short time, that was later fixed at a little less than 43.80.

However, the expert mentions that despite the euphoria around oil and the ruble, future prospects should be evaluated carefully.

“Oil priced at $77 is technically no more than a correction of the drop from $147.2 to $33.2. Fundamentally, the demand for energy sources on the part of importing countries is still weak because of huge reserves that were purchased at a low price. Consumers still cut their spending, which is confirmed by zero inflation in the last two months,” he says.

“The euro will likely continue its growth after certain correction, because the investment demand is high. After long strengthening caused by traders, the ruble may encounter strong support near the level of 35.80 rubles against the bi-currency basket. Usually after this the market changes its direction. The closest goal for the ruble against the US dollar is 29.60, and later 30.30,” the analyst said.

As for Forex, experts believe that the basis for a large-scale correction has formed, and only huge liquidity that moves from one market to another allows the “bears” show themselves.

Ekaterina Evstigneeva.

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Author`s name Dmitry Sudakov