Ruble quotations become independent from oil and sinking in a geopolitical flood

A bolt out of the clear macroeconomic sky

On August 26, the ruble continued to update its lows against the dollar and euro. USD/RUB reached the level of 75,96 during trading (the last time such levels were observed in April), and EUR/RUB — up to 89,81 (this has not been the case since February 2016).

The unusual situation, according to many economists, is that this fall is recorded against the background of relatively stable macroeconomic conditions: oil prices are at a comfortable level, and the “coronacrisis” has affected Russia less than most other major economic powers. Besides, the tax period was about to end, when large Russian exporters purchased the ruble for settlements with the tax authorities. It would seem that the conditions for the ruble were rather hothouse than cooling.

Many economists agree on this point. For example, Vladislav Kochetkov, the president of FINAM Group, says:

“The circumstances should have been favourable for the strengthening of the ruble: the tax period has just ended (but even within its framework, the ruble was falling). Oil is being at fairly comfortable levels. Moreover, it was mainly growing while the ruble was falling. The ministry of finance is holding auctions and taking actions to absorb the ruble liquidity. In other words, the situation in the macroeconomics is being good, and we may even see deflation in the statistics for August. In other words, it would seem that the ruble should grow, but it is falling.

Natalia Orlova, the head of the centre for macroeconomic analysis at Alfa-Bank, expresses a similar position:

The US and Navalny's disease have played a cruel joke on the ruble

All experts agree that the main factor of pressure on the ruble turned out to be the foreign policy situation, what's interesting on several fronts — the protests in Belarus and the illness of Alexey Navalny have affected. Plus the elections in the United States.

Vladislav Kochetkov believes that the situation with Navalny has caused a hasty withdrawal of non-residents from ruble assets:

“There have already been verbal interventions by our American partners about the possibility of new sanctions. It is possible that individual companies — large investors — are reacting to these statements. In recent days, you can see how, in parallel with the fall of the ruble, the shares of Sberbank and Norilsk Nickel — the companies that traditionally have a lot of non-residents. This is despite that Sberbank has announced that it would allocate about 50% of its profit to dividends and an attractive dividend yield of 8%. Nevertheless, the company is going down, while the trading volumes are quite large. Perhaps this is an indirect indicator that some non-residents in the current situation have preferred to keep their profits and withdraw from the Russian market. I think that certain foreign policy pressures and the withdrawal of non-residents from the market are having a certain effect on the current dynamics of the ruble. We will see what will happen in the end with the poisoning, whether there will be any charges. But investors, just in case, as I understand, are insuring against a negative scenario. Especially since the US elections are approaching. And elections are always an occasion to play some foreign policy case. And Navalny is a good informational reason for this.

Natalia Orlova also notes a reduction in the positions of foreign investors in Russian assets:

“There is an important date ahead — the election in the US. It is probably more important for Russia in the light of the sanctions challenges than for many other countries. Judging by economic factors, the pressure on the OFZ market has increased in recent days: if foreign investors kept their positions in the OFZ market unchanged in the previous week, then in the last few days their view of Russia has worsened, and they have begun to reduce their positions. This is a fundamental prerequisite for the loss of the ruble's positions. Now negative factors — Belarus and the situation with Navalny — have worsened the mood of the market, and the American elections are likely to bring no good news for us either. And I think everyone who thought that they would wait for the market to grow and fix profits later decided to do it now, so as not to get into turbulence.

But Tatarstan economist Albert Bikbov, on the contrary, considers the American elections as a factor of possible strengthening of the ruble:

Most experts agree that the ruble is now based not on oil, as before, but on completely unpredictable political factors.

Turkish lira, hydrocarbon tax and Russian holidaymakers

Vladislav Kochetkov names another indirect factor of pressure on the ruble: currency turbulence in developing countries — for example, the Turkish lira. He says that emerging markets are linked in the following way: problems in one market lead to investors reducing their presence in the rest. This means that Russia is also experiencing some influence from this process.

The next interesting point is described by Natalia Orlova:

“Today, the topic of the hydrocarbon tax, which will be introduced by Europe, is again on the agenda. Certainly, this is not the situation for the next few years — according to the basic plan, the introduction of the tax is planned for 2025. And the price of the matter is not very high: according to preliminary calculations, $33 billion a year for 5 years — $6 billion a year. This is equivalent to an annual drop in the price of oil by just $2 a barrel. But the market is now in such a mood that any negative news adds to the negative, and positive news is ignored.

Finally, Albert Bikbov notes the opening of Russia's borders with some countries as a factor of pressure on the ruble: in his opinion, the deferred demand for the currency for holidays is being realised now. Russians are buying up dollars to spend on holidays, and the demand for flights abroad is high, despite the coronavirus:

“This, by the way, is a regular phenomenon: financial market experts say that in the summer, during the holiday season, the demand for currency always grows. In the summer months, it experiences an upward trend. However, this factor is not very significant in the current situation, and its influence will disappear by the end of September.

What will happen next?

A pullback of the ruble's quotations to more comfortable values is quite possible, according to experts interviewed by Realnoe Vremya. But they all agree that it is still difficult to predict the situation accurately. For example, Vladislav Kochetkov is betting that Russia has suffered less from the coronacrisis than other major economies:

Natalia Orlova also, figuratively speaking, believes that the glass is rather half full but approaches the issue more carefully:

“I believe that by the end of the year from the current levels we have a much better chance of strengthening than weakening. But, of course, we are now entering the zone of influence of geopolitical factors. In this sense, it is difficult to make economic forecasts when investors are not guided by economic factors. On the one hand, global markets are going up, and we risk falling behind. And at some point, investors may start to increase the presence of our assets because compared to other markets, we will be very cheap. But if global markets do not grow quickly, fear will prevail. So the question remains open...

What will happen to ruble savings?

Market experts strongly do not recommend rushing to a bank and urgently buying currency with all the saved rubles. Vladislav Kochetkov claims that wrong transactions are made emotionally — he is a proponent of gradual portfolio diversification in rubles, dollars and euros. The president of FINAM Group advises gradually buying currency every month in equal shares, spending about 5-7% of regular income on this.

Natalia Orlova also does not recommend buying a currency when it has already risen in price, at a time of high volatility:

“A person who is not versed in currency trading, from the moment we switched to a floating exchange rate, we advise you to just keep rubles. Now the exchange rate movement is not related to the preferences of the Central Bank. It is not moving along a predictable trajectory but in the mode of market volatility. To play in such a market, you need to be very well versed in the trends that determine it. So it's not advisable to risk your savings.