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Thursday, October 27, 2016

The Russian currency has ceased to react to oil prices

Last week, the Russian ruble has become a model of stability, forcing to recall a time when people were not used to monitor the rate of the national currency. “EVE” interviewed analysts for how long this phenomenon?

photo: Gennady Cherkasov

The second half of July was positive for the Russian currency, which demonstrated the wonders of sustainability against the background of falling oil prices. Euro for the first time since last year broke the mark of 70 rubles, and the dollar fell below 63 rubles. The phenomenal ability of the ruble to stay at the local highs surprised analysts, who began to think about what is happening with the Russian currency, even if the fall of oil by 5% had no effect on the rouble.

The situation on the world raw material market so far is not encouraging. According to Global Platts, in June, the volume of oil production in OPEC rose to 32.73 million barrels a day, which is the maximum value since August 2008. “Of course, such statistics once again raised fears that the global economy continues to exist in conditions of excess supply of energy. The discrepancy between supply and demand in the near future will only intensify as the market awaits the final return of the canadian supply, increased production in Nigeria and Libya and from Iran and Saudi Arabia,” — said the head of the analytical Department of the company AMarkets Artem Deev.

Since oil prices are hanging between 45 and 50 dollars and it is unclear in which direction the pendulum will swing, analysts differ. Because the ruble is not more inherent stability, and a strong movement in one direction or another, depending on the oil. In the past few months, American oil companies once again began to increase the number of active drilling rigs, and this suggests that oil production, though with a slight lag, but also grow.

Moreover, commissioning of drilling rigs in the shale deposits indicates that U.S. oil companies have significantly streamlined their costs, with the result that even at current oil prices, they can afford to operate without a loss. “The fall in oil prices once again contributes to the rising risk of a significant weakening of the Russian currency towards the end of the month. Is that the ruble is held by the demand from exporters and the interest of foreign investors in the OFZ market, but soon the situation could change considerably, resulting in the ruble exchange rate will again drop to 68-69 rubles per dollar”, — said General Director of “Source” Robert Bagratuni.

Support the ruble yet have dividend payments of Russian companies, which must be made in the Russian currency. But then the same money can go into the currency market, halting the strengthening of the ruble.

In the second half of the month are large tax payments, which can give players to increase confidence in the ruble. Such a situation in the market for a long time: for the first time in a very long time there have been dissociating market value of the ruble from the movement in oil prices. The ruble continues to demonstrate anomalous stability, almost not reacting to the change in oil prices.

Even the drop in oil prices on Wednesday from $47.8 to $46,2 almost no effect on the rate against the dollar and the Euro. While a slight weakening was offset as some recovery in oil prices. “Strong change is possible in the case of new information about serious change in the volume of international reserves of the Central Bank, and the reduction of the key rate. The market expects easing monetary policy this year. In addition, it is worth considering that the strengthening of the ruble reduces revenues, so the Bank of Russia can enter the market with interventions in case of excessive strengthening. The budgeted price of a barrel of oil at 3150 RUB At the current rate the price of oil in dollars for the budget should be at $49,5 and now it is almost $3 cheaper. Therefore, the budget required a weaker ruble,” — says the first Deputy Chairman of the Bank “Ugra” Yuri Melnikov.

After a referendum in the UK it seemed that investors need to flee to safer assets. But they, apparently, prefer a more risky and profitable investments. Well, rally of the ruble, which showed the best performance among currencies of developing countries, only adds to his appeal. The Russian currency has suddenly broken out of its narrow trading range, which was from April (63,5–67,5 rubles per dollar), but a successful break below 63 per dollar seems unlikely. This mark was a psychological milestone that is difficult for the ruble.

In order that we may see a further increase, of oil on the world market should rise. Probably support the ruble and having an external discharge: we hear more and more statements of Western leaders about the need to revise sanctions against Russia. There are positive changes in the economy, we see a slight increase in production, but any positive is on the hands of the Russian currency.

Note that the last week does not mean that the ruble is completely entrenched in positive territory and looking firmly to the North. At the end of the week the ruble has been significant growth against the dollar. The dynamics of oil prices, as well as some overbought of the Russian currency are the key catalysts for this dynamics.

On the eve of the Bank of England unexpectedly decided not to ease monetary policy, which also is not a positive for risky assets. “This moment is surprisingly ignored by most financial assets. So with a small time lag may exert a certain pressure. Meanwhile, in my opinion, after the referendum, the UK still present risks in the insurance sector and real estate sector of the country as well as Italy’s banking sector”, — says Ivan Kopeikin from BCS Express. The analyst believes that the purchase of the dollar now looks much more interesting sales. The enshrinement of the “American” mark above 64 can become an additional confirmation of the growth signal.

Recently, the demand for the ruble is very high, experts say. Russian OFZ is still popular among foreign investors. So in the height of tourist season, the ruble has made a gift to all travelers, as we are now seeing the best rates this year.

Not later than the first week of August, the situation may change. In particular, can begin to grow, the demand for currency, apart from the oil factor. “The question is how much is enough for the Russian currency, will she be able to reach the mark of 60 rubles to the dollar, which will certainly be a major achievement. This will depend on the external background, primarily from the dynamics of oil prices. Investors will hunt for signals from the commodity market, speculative factor can serve as the situation in Turkey, which is an important commodities hub,” — said Deputy Chairman of the Board Loko-Bank Andrey lyushin.

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