Fundamental Analysis: Ruble Volatile on Data and New Threat of Sanctions

Fundamental Analysis: Ruble Volatile on Data and New Threat of Sanctions

The ruble has been quite unstable against the dollar in today’s session after weaker GDP data. A bloc of American representatives also threatened new sanctions on Russia, heightening volatility. Today’s unusual movements come after a week of sustained gains by the ruble. Support came from rates as well as oil.

USDRUB is currently trading at around ₽63.16, which is very slightly above this morning’s open. Earlier, though, price spiked sharply to nearly 63.80.

‘Blue Dogs’ want to punish Russia

There has been ongoing fallout in Washington from alleged Russian meddling in 2016’s election. Centrist representatives released a statement today responding to the Mueller Report’s findings. The Blue Dog Coalition announced the aim of increasing sanctions on many areas of Russia’s economy. These include investments outside Russia, a number of Russian banks, and the country’s sovereign debt.

This unusually strong language from Democrats against Russia specifically as opposed to the typical allegations of collusion were a factor in this morning’s spike. However, Russian GDP data data was also negative for the ruble. Annual growth in GDP for May printed only 0.2%. This stands against the consensus of about 1.1% and the previous 1.7%.

Strong support for RUB from oil

These relatively minor negatives aside, the ruble’s fundamentals this week looked good. American light oil (USOIL) has posted strong gains to three-week highs around $57.50. Changes in the price of oil are very important for the ruble because Russia is the world’s third biggest producer of the commodity. Typically the correlation between USDRUB and USOIL is quite strongly negative.

Also a very important factor for USDRUB this week is the Fed’s increasing dovishness. The central bank’s meeting on Wednesday night effectively opened the door to a cut in rates this year. If this does occur in line with increasing expectations, the Central Bank of the Russian Federation’s rate cut last week would be negated in practical terms. Either way, USDRUB’s current differential of around 5% will remain a major negative factor for the price of this symbol.

Moving away from today’s data, overall many of the other important releases this week have been good for the ruble. Yesterday featured annual retail sales, unemployment rate and annual wage growth all beating the forecasts.

Oil and Dr Powell key for USDRUB next week

The main fundamental factor driving the ruble in the first part of next week is likely to be its correction with oil. Continuing gains by crude amid tension in the Gulf would be positive for RUB.

Also in view is the speech on Tuesday by the chairman of the Federal Reserve, Jerome Powell. Traders of USDRUB and many other symbols besides will be studying Dr Powell’s comments very carefully for hints on the timing of any rate cut by the Fed.

Although less significant for direction than volatility, American politics is also important. Ongoing news of reactions to the Mueller report and intentions of the opposition Democratic Party could cause considerable instability for dollar-ruble.

Ruble could keep moving up

Based on current fundamentals, the most likely direction for the ruble into next week is upward. Consideration of the technical picture for USDRUB tells us that any such movement would probably be small given the current oversold conditions. However, sudden losses by oil could alter this picture significantly.

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