Education


The Russian Ruble, now close to a multi-year peak against major
currencies like the EUR and the USD, is the strongest performing currency in
the world so far this year, despite the tough economic sanctions imposed by
western governments since the country invaded Ukraine. Will the Ruble keep
strengthening? It is possible…

Russia’s currency was
only buying USD 0.0079 at its lowest level after Ukraine’s invasion and the
international rounds of sanctions that followed. However, the currency has
undergone an impressive reversal and made a spectacular comeback to become
today the best performing currency of 2022!

Even though the
USD/RUB Forex pair was reaching a
multi-year peak at around 54 at the time of writing, some analysts expect the
local currency to keep strengthening and the currency pair to keep falling, as
companies in the country will soon have to pay their taxes.

As many Russian
companies rely on exports, they receive revenue in USD, in EUR or in other
currencies, which means that they have to convert foreign currencies into
Russian Rubles to be able to pay their taxes, which will most certainly support
the Russian currency in the near future.

ruble

Daily Chart USD/RUB – Source: ActivTrader Trading
Platform powered by TradingView from the broker ActivTrades

What are the reasons behind the Russian currency’s
sharp recovery?

Russia responded to
international sanctions by implementing a number of capital flight prevention
measures, such as tough capital controls and central bank interest rate hikes
among others, which have significantly supported the local currency.

To prevent significant
withdrawals from the Russian financial markets and to limit further losses
following the initial fall of the Ruble, Russian citizens weren’t allowed to
transfer large amounts of money abroad, and banks were prohibited from selling
Russian financial assets held by foreigners and non-residents.

Moreover, Russian
exporters were forced to convert 80% of their foreign currency holdings.
Russian bank accounts with foreign currencies were also subject to
restrictions, as the amount available to be withdrawn was limited to $10,000,
with the requirement to keep the rest of the balance in Rubles.

The Russian central
bank’s actions also supported the financial system, especially by raising
interest rates up to 20% in February 2022 (they are now back down to 9.5%
according to the Bank of Russia’s latest data),
which provided incentives for Russians to keep Rubles in their savings accounts
rather than to convert them into foreign currencies.

Demanding that
European Union countries, especially “unfriendly countries”, buy natural gas
from Russia in Rubles, rather than USD or EUR, was another move Moscow took to
preserve the value of its currency. This decision forced some countries to
convert their currency into Russia’s currency to be able to pay their gas
bills.

Let’s not also forget
that by the time Western nations actually voted and approved sanctions against
Russia’s commodities, several countries had to keep purchasing their
commodities from Russia due to their high reliance on Russian products,
especially energy supplies.

Because these payments
were done in foreign currency, it provided a consistent supply of foreign cash
into the country that could either have been used to avoid Russia going
bankrupt on foreign markets, or have been used to be able to convert foreign
currencies into Ruble to avoid the currency falling further.

What are investors expecting from the Russian Ruble?

While Russia’s
currency has shown an impressive turnaround, there are still many uncertainties
around the future of the Russian economy and how the new global relationships
will affect the level of trade with Russia. Will domestic markets be able to
keep pushing the Russian Ruble higher? How will pessimistic growth forecasts
affect the Ruble’s long term trends?

For active traders,
CFD brokers like ActivTrades, might be able to provide a chance to capitalize
on higher uncertainty and higher market volatility over the short-term through
CFD trading.

Author bio:

Carolane de Palmas graduated with a Masters in
Corporate Finance & Financial Markets and got the AMF Certification
(Financial Markets Regulator in France). Afterward, she became an independent
trader, investing mostly in European and American stocks/indices.

She created her own company to provide
market analyses and educational content on a variety of subjects, from general
economic topics to specific trading strategies on the FX and crypto-markets to
analyses on the hot market of the moment to brokers and specialized websites.

Twitter: https://twitter.com/Carolane0408

FB: https://www.facebook.com/carolane.depalmas.184

LinkedIn: https://www.linkedin.com/in/carolanedepalmas/





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