Russian ruble is back with a bang

The USD/RUB crashed for three straight weeks even as the western countries continued to pressure the Russian government. The Russian ruble is trading at 76.8 against the US dollar, which is about 37% below its highest point this year. 

S&P downgrades Russia

The USD/RUB declined last week even as the United States, the European Union, Japan, and the UK added more pressure on Russia. They unveiled more sanctions and measures to reduce Russian imports like coal.

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Notably, the Russian ruble rose even after the country’s central bank decided to slash interest rates by 200 basis points.

Meanwhile, during the weekend, S&P Global Ratings slashed Russia’s credit rating to ‘select default’ after the government announced that it would make payments of its upcoming foreign bonds in rubles. The bonds were all issued in dollars and the euro.

On Sunday, Moscow said that it would direct about $3.4 billion to its rainy day fund. Most of these funds came from oil and gas sales in the first quarter.

There are several reasons why the USD/RUB pair has dropped parabolically lately. First, in response to sanctions, the central bank has increased interest rates sharply, which led to some demand from Russians. Second, the government has announced some capital restrictions that make it impossible to send certain amounts of cash internationally. 

Third, the Russian government has unveiled measures to force oil exports to be financed in the currency. This measure will lead to more demand for the currency from international buyers. Further, Russia has continued to sell oil and gas internationally despite these sanctions. More so, the prices of these commodities are sharply higher than where they were when the crisis started.

Another reason is that most emerging market currencies have jumped sharply in the past few weeks. These include currencies like the South African rand, Brazilian real, and Mexican peso.

USD/RUB forecast

The daily chart shows that the USD/RUB pair has been in a dramatic sell-off in the past few weeks. As a result, it has managed to drop below the short and long-term moving averages while the Relative Strength Index (RSI) has moved to the oversold level. Therefore, there is a likelihood that the Russian ruble will strengthen in the coming weeks. In the long-term, however, the pair faces an uphill battle.

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