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Saturday, December 3, 2016

Ruble predicting further strengthening


Financial analysts are trying to predict the future dynamics of the ruble. On the one hand, for the first two quarters of 2016, he strengthened considerably, from the other risks for the Russian currency has not disappeared. What factors and in what direction will influence the ruble in the coming months?

Analysts from one of the world largest banks JPMorgan Chase & Co suddenly made a forecast strengthening of the ruble before 61,36 per dollar by the end of this year. And this at a time when most analysts are waiting for a completely opposite trend – the weakening of the ruble.

“The probability of further strengthening of the ruble is still higher, if the dynamics of oil will remain stable”

So, JPMorgan forecast suggests the strengthening of the ruble by 5% by the end of the year (64.5 ruble today 61,36 per dollar in December). While the consensus forecast of analysts surveyed by Bloomberg, suggests, on the contrary, the weakening of the ruble against the dollar by 3% by the end of the year.

This year, the ruble shows a good result: since the beginning of the year, the rate strengthened by 14%. This is the best indicator among the currencies of emerging economies after the Brazilian real and South African Rand. This is despite the fact that back in January due to falling oil prices, the ruble fell to historic lows in 86 per dollar.

Explanation

What explains such large differences in the estimates of the ruble? Experts differently assess the risks and factors that may impact on the Russian currency in the next six months.

So, an analyst for emerging markets at JPMorgan Chase & Co. in London Saad Sadiki comes from the fact that the ruble could become one of the growth leaders in emerging markets, because the ruble offers one of the best opportunities in so-called carry trades. It is a strategy game on the difference in interest rates. Its essence is the conversion of the currency of the state, setting low interest rates, in the currency of the country with high interest rates and investing them in government bonds or company. That is, supporters of the growth of the ruble reflects its attractiveness in terms of revenue currency in a world of near zero interest rates, says financial analyst FxPro Alexander Kuptsikevich.

Recently really increased the popularity of the game of carry trade in rouble assets, because after Brexit capital began to take refuge in emerging economies. “Russia, where due to the tight monetary policy of the Central Bank to get a yield above inflation, which is rare in these times, is one of the most interesting options for investment. The difference between the forecasts of JP Morgan and analysts of other investment banks is a different assessment of the scale of flow of capital and market conditions in the energy market”, – explains the Vice-President of IFC Financial Center Stanislaw Werner. JP Morgan believe that the inflow of capital into Russia will continue.

However, the rouble will remain another growth driver is oil prices. And this is another factor of uncertainty. Those who are waiting for the weakening of the ruble, betting on a decline in oil prices, calling the current level close to the upper limit of the long-term sideways range, says Kuptsikevich. Unlike JP Morgan, where presumably, believe in the growth of oil prices.

In fact, pending the weakening of the ruble do not believe that oil will leave the range of 40-50 dollars per barrel. Although on the eve of its price has soared more than 6% amid speculation that Saudi Arabia is ready to finally contribute to the adoption of decisions on the freezing of oil production in OPEC. The oil Minister of Saudi Arabia stated that at the September meeting will discuss real measures to stabilize the oil market.

While production from the Saudis themselves breaking all records, and in Iran it comes to pre-sanctions levels. But should we trust the Saudis? It is possible that their goal is only to pump up the market by verbal intervention. “Most likely, in the near future, we will have a series of reviews on the topic of the likelihood of “freezing” quota”, – said Alena Afanasyeva from Forex Club.

“We’ve been through in February – March this year, and then the oil rose up to the fruitless meetings, and then began to fall. It is not excluded that till the end of September we will see attempts to push Brent higher,” – said Afanasyev.

“Oil prices reeling, investors are unable to determine what exactly is going to manage them in the current semester. Local supply problems and the alignment of the balance of supply and demand in the oil market, or the increase in production in OPEC and the restoration of the number of producing rigs in the shale deposits in the USA”, – said Vladimir Evstifeev, head of information and analytical Department of Bank “Zenith”.

Another uncertainty factor is whether the power to interfere in the dynamics of the ruble exchange rate? “Just in July in the midst of the strengthening of the ruble, when he demonstrated the “recorrelation” with oil, the words of Vladimir Putin about the risks of excessive appreciation of the national currency is enough to expand the course in the opposite direction. At that time the 40-day correlation between the Brent and ruble was 0.58, well below 0,80 observed in may,” explains Anastasia Semenova from the OBR Forex. In terms of the dependence of the Russian budget from oil and gas revenues, the state will intervene every time a measure the correlation will go below 0,60, she said.

The Bank of Russia can easily weaken the Russian currency will continue if the cycle of lowering the key rate. The same could be done and the fed, if, on the contrary, will raise rates before the end of this year.

This week happened another event, which carries risks for the Russian currency – the aggravation of Russian-Ukrainian contradictions on the background of the failed attack in the Crimea, in which Russia accuses the Ukrainian authorities. It is fraught with “grave consequences”, warns Moscow. At this time Kiev leads the troops in a state of high alert on the border with Crimea.

“While this development does not affect the exchange rate, reflected, however, in quotations of Eurobonds of the two countries. However, further escalation of tensions could trigger large sales of the ruble,” – warn the analysts of Sberbank Investment Research.

Forecasts

“In our view, the likelihood of further strengthening of the ruble is still higher, since the dynamics of oil is likely to remain stable with bids in the range of $ 40-50 per barrel. In addition, the role will play and positive economic data in stabilising the economy, and any signs of warming relations with the West,” in solidarity Semenova with the expectations of JPMorgan.

Stanislaw Werner of IFC Financial Center also does not exclude that by the end of the year, the ruble may strengthen. But before that, it still will be a storm in the near future the dollar may reach 70 rubles, he said.

First, the ruble probably will be again under pressure due to the seasonal outflow of capital caused by the conversion by nonresidents of dividends on Russian shares. Second, the oil market before the OPEC meeting in September will also rule the roost seasonal factors in the reduction of demand for crude oil due to the completion of the driving season in the United States and to the shutdown of refineries. Thirdly, abolishes balance of payments and the need to use the Reserve Fund to cover budget holes also speak in favor of this scenario, experts say.

“However, by the end of the year, the ruble may again embark on the path of strengthening, driven by a reversal of the balance of supply and demand in the oil market. The question is, will the situation in the energy market to become more certain by the end of the year or it will occur still later, and does not intervene in the pricing of geopolitical factors,” says Mr Werner.

The weakening by year-end is waiting for Vladimir Evstifeev from “Bank Zenit”. It forecast year-end – 66 rubles per dollar when the price of a barrel of Brent crude oil to $ 45. Pessimistic all Alexander kuptsikevich of FxPro. He’s expecting the ruble to weaken in the region above 72 to the dollar, with the possibility of the peak of the dollar at 75 in early 2017. “This is the traditional dynamics of the ruble to lose since July – August. Fundamental factors also do not contradict such dynamics: the Americans are once again increasing production and reserves and, therefore, not far off another wave of decline,” he explains his position.

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