Fundamental Analysis: Ruble Moving up on Oil and Data

Fundamental Analysis: Ruble Moving up on Oil and Data

Russia’s ruble has posted strong gains against the dollar this week as oil has rallied. Expectations for inflation in Russia also remain high. Meanwhile Russian shares remain very close to record highs today.

USDRUB has declined significantly since Tuesday in line with oil’s bounce over the past few days. Dollar-ruble hit a three-week low of ₽64.44 in the early morning GMT.

Oil back above $63 spurs RUB higher

The ruble usually tracks movements in the price of crude oil closely because of the commodity’s importance in the Russian economy. Russia was the world’s third largest producer of crude oil in 2018 based on data from the Energy Information Administration.

Tensions in the middle east over the past few days threaten the supply of oil. American light oil has moved back above the important area of $63 per barrel. These events have given some strength to the ruble’s ongoing rally against the dollar. More generally, traders of the Russian currency have also noticed reports of record exports of energies from Russia to the EU in the beginning of 2019.

Inflation remains above target

Based on data from the Central Bank of the Russian Federation (CBR) last week, annual inflation in Russia was 5.2% in April. April’s report from the CBR on inflation expectations indicated that this figure could shrink somewhat towards the end of 2019. However, projections for the next few months remain within the range of 5.7-6.1%.

These figures and estimates come against the bank’s target of 4%. They also come in the context of December’s rate hike not having any obvious effect in curbing inflation. In fact, the trend of rising annual inflation in Russia has intensified since the last quarter of 2018. These factors suggest that the CBR might hike its key rate in 2019.

MOEX close to all-time highs

The MOEX Russia Index, Russia’s main benchmark of shares, made a decent gain of more than 1% in today’s session. 2,584.50 is close to April’s record high of 2,600. Among the key drivers of recent gains in Russian shares is the energy sector. Gazprom in particular doubled net profits last year amid a surge in sales of gas to Europe.

GDP data eyed tomorrow

The key data from Russia tomorrow is preliminary GDP growth at 13.00 GMT. The consensus is about 0.8% against the previous figure of 2.7%, which was unusually positive. If 0.8% is accurate, the ruble might face some headwinds.

Traders are also going to be watching the statistic for Russia’s balance of trade tomorrow at the same time. This is expected to increase slightly to $16 billion.

Even though the recent escalation in the Sino-American trade war hasn’t affected the ruble negatively yet, RUB traders should still keep an eye on the news. Russia’s dependence on exports of commodities means that the country’s currency could be vulnerable if tariffs continue to intensify and demand in China slows.

Technicals could bar further gains for the ruble

Based purely on recent fundamentals, the ruble seems likely to strengthen into next week. However, traders also need to remember technical factors, particularly a series of strong supports on USDRUB. The first of these - currently being tested - is the area of ₽64.50. If this is breached, ₽63.65 could be the next key zone of interest.

Trade USDRUB with minimal spreads from 9 pips.

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