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Tuesday, October 25, 2016

The ruble has ceased to react to oil

The ruble continues to behave paradoxically – it becomes stronger, despite falling oil prices. Such an unusual situation is observed since the beginning of July, the ruble renews semi-annual highs, the increased demand for Russian shares. What is happening with the Russian currency and how long will this trend?

On the eve of the ruble strengthened growth, the first time this year pushing on the Moscow exchange Euro to 70 rubles, and then the dollar to 63 rubles, updating the lows for more than six months amid increased demand.

“Now we can not exclude possible increase of the ruble to 61 per dollar in the next week or two. However, the more probable is a reversal in the area of 75 in the next month or two”

Friday to 13.30 Moscow time the Euro exchange rate is 70.4 ruble, dollar – ruble 63.6, according to data from the Moscow exchange. This oil is again in the red – first Brent fell 1 percent to 46.48 USD per barrel for dinner drop decreased (47,20 USD.

Also there has been increased demand for Russian assets. Investments of investors in funds focused on Russian assets, per week (from 7 to 13 July) increased 49 times, to 96.3 million against inflows of USD 2.5 million a week earlier, reports Bloomberg.

Traditionally, the ruble follows the oil, but in recent time it is seen that the ruble is fairly strong and does not react to the price of a barrel. So, on the eve of the ruble has demonstrated a significant improvement of almost 1 ruble, up to 63 rubles per dollar, with an increase in the price of oil by $ 1. Although historical trends show that normal is the strengthening of the ruble 70 kopeks in the growth of oil prices by 1 dollar, the analysts of Raiffeisenbank.

“This is due to the demand for rubles to pay dividends, tax payments and consolidation of money banks by increasing reserve requirements since August. Moreover, investors around the world are trying to find assets that provide at least some yield, as the most safe securities traded with a negative yield. Thus, investors have worries over oil – it is near the same levels for a week”, – said the newspaper VIEW, the financial analyst FxPro Alexander Kuptsikevich.

The inflow of investments in funds that invest in Russian assets, also due to the demand for assets that can provide at least some income. Russian assets are undervalued, the expert adds.

If the Russians vacationing or preparing for a holiday abroad, such a strong ruble can not but rejoice, that the budget is not very good. The price of oil in rubles has fallen again to less than 3 thousand rubles per barrel, lower than budgeted for the current year – about 3165 rubles per barrel of Urals oil.

“It will negatively affect oil and gas revenues of the budget and may require additional spending from the Reserve Fund. In addition, a limited amount of liquidity in the banking system will keep the market rate at an elevated level, which can also create difficulties in financing the deficit with domestic debt”, – said Irina Lebedeva from URALSIB. In such a situation, she adds, the weakening of the ruble will be a positive factor for the Russian budget.

The forecast for the ruble

How long the ruble will not be able to react to falling oil prices and to stay strong? Experts believe that this is a temporary phenomenon, and once the increased demand for rubles will come to naught, it could trigger a new spiral of falling of the Russian currency.

The Director of analytical Department of “Alpari” Alexander Razuvaev believes that the ruble will continue to strengthen, and by the end of the month, the pair dollar/ruble will fall to the level of 60.5, and a pair of Euro/ruble will feel the mark of 68.7.

Despite the fact that the separation of the ruble from its conditional fair value exceeded 5%, further strengthening a big question, says Denis Davydov from Nordea Bank. However, he does not exclude that the support of the ruble through the dividend can last until mid-August. In his view, expect the dollar at the level of 63-65 rubles in the near future.

“This consolidation creates a risk of a fairly sharp decline in August, after the end of the tax period. Around the same time the sale of foreign currency by the corporate sector to pay dividends is come almost to nothing, and, on the contrary, will increase the demand for currency by the recipient of dividends, may cause a new wave of falling of the ruble, regardless of oil prices”, – says Irina Lebedeva.

But Alexander kuptsikevich believes that a strong ruble will end soon. “Now we can not exclude possible increase of the ruble to 61 per dollar in the next week or two. However, the more probable is a reversal in the area of 75 in the next month or two,” he said. “Factors supporting the ruble provisional. Besides drilling activity increases at current prices, creating higher chances of a repeat of the situation last year, when in July began an active decline in oil prices continued in August,” – says Kuptsikevich.

Investment banks, including BNP Paribas, had just expressed their concerns about the falling price of oil to $ 40 per barrel. In their opinion, such a fall can happen due to the possible decline in demand and return to market production capacity of Canada, retired due to forest fires in Alberta.

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