The ruble in August can wait for surprises
The us the fed recently lowered the rate, noting that similar steps in the near future is not expected. Prior to that, markets, the main scenario considered two rate cuts in a row in July and September and also considered the possibility of another “descent” to the end of the year.
However, recent comments by Powell killed all hopes of investors on the vine. As a result, the dollar is gaining weight, adding a basket of major currencies, almost 1%, reaching two-year highs.
USDRUB, however, have not risen so high, only to three-week highs around 64. However, this may be only the beginning of a long trend in the decline of the ruble – for several reasons. Unlike the fed, the Bank of Russia has signaled that a rate cut in the coming months – be. That is, the difference in yields of short-term securities (in roubles and dollars) will be reduced in favour of the Russian currency.
More importantly, the growth of the dollar – if it will continue – to draw strength from commodity and emerging markets. It was a year ago, when USD strengthened on fears the consequences of trade wars. Still more analogies can be made with 2014. Then the strengthening trend of the us currency was launched on expectations that the fed will pursue a tighter monetary policy than most other countries. For ruble the magnitude of the decline at that time, was strengthened by the sanctions, but to them the Russian currency had hard times.
An additional pressure is now seasonality. In August, many investors estimate prospects of the Russian currency until the end of the year. By themselves, these fears can become self-fulfilling prophecy, especially given that the Russian currency has grown impressively since the beginning of the year. This has made current levels attractive to buy the currency after a 11% strengthening of the ruble in the first half.
We should also mention the Euro. The single currency fell against the dollar to 2-year lows, but the pair EURRUB now hovering just above 70.65 due to the General weakness of the ruble. The Russian currency often makes a more abrupt movements within the trend, so the weakening of the dollar also opens the way for growth rate EURRUB, moreover, that a strong dollar usually leads to lower oil and stock markets. At the same time, if the Euro will continue to retreat in search of a new bottom against the dollar, strengthening EURRUB may lag behind the growth of USDRUB.
At the end of August the USD / RUB pair is able to return to the area above 65.5, while the combination of negative factors may reach up to 67.
For EURRUB, this will mean you can roll back to 71.40 (at 1.09 on EURUSD) and 72.0 (at 1.10), as well as the possible breakthrough in the area of 74-74.50.
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