Fundamental Analysis: Ruble Bounces as Oil Gains

Fundamental Analysis: Ruble Bounces as Oil Gains

The ruble has bounced significantly from last week’s lows since Monday’s opening. Among the main factors behind this are oil’s holding very near 2019 highs and a degree of weakness for the dollar. News from Russia’s central bank has also been mostly positive.

The dollar has declined sharply this week from its highs around ₽66.50 on Friday afternoon. A significantly lower opening on Monday gave some impetus for USDRUB’s movement downward below ₽65.50 at the time of writing, a three-week low.

CBR positive and oil up

Brent crude has managed to sustain levels above $67 a barrel in today’s session so far, giving strong fundamental support to the ruble. According to the Energy Information Administration for, Russia was the world’s third largest producer of crude oil for 2018 with about 11.2 million barrels per day. The country is also the second largest exporter of crude oil after Saudi Arabia. The crucial role of crude in Russia's economy means that RUB usually tracks crude oil very closely.

The Central Bank of the Russian Federation (CBR) has also been fairly positive so far this week. The CBR’s press release yesterday noted that the cost of borrowing in foreign currency remains low and current account inflow high. It also referred to higher foreign buying of Russian sovereign bonds last month. On the other hand, the CBR made mention of somewhat less optimistic sentiment in February.

The ruble had declined significantly at the end of last week, reaching above the important ₽66 to the dollar. Given the movements of oil, though, these levels were difficult to sustain. Data provided lesser support. Inflation data were mixed last Wednesday, although the important annual figure adjusted for February met the consensus at 5.2%, higher than the previous release.

Considering the bigger picture, the carry trade remains highly supportive of the ruble. The CBR’s key rate at 7.75% is one of the highest among OECD/G20 countries. This makes the differential for USDRUB 5.25-5.5% in the ruble's favor.

Focus on the dollar this week, but watch Russian data

The range of data from the USA in the rest of the week means that the dollar is likely to be the driver for USDRUB over the next few days. Trade and housing data from the USA are expected from 12.30 GMT tomorrow. Friday afternoon features the JOLTs release and figures on industrial production.

Traders should not ignore data from Russia, though. 13.00 GMT tomorrow is the scheduled release of Russia’s balance of trade for January. The consensus predicts a gain in trade surplus to around $19.5 billion. Coming up on Monday is the release of data on yearly industrial production.

More gains possible for the ruble

The most likely scenario according to fundamentals is a further small drop for USDRUB over the next few days. However, traders should not ignore the technical outlook for dollar-ruble. The dollar is oversold in this pair on various timeframes, so any more losses are likely to be small.

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