The ruble went on vacation: why the Russian currency continues to fall in price

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In early August, the ruble is again in a fever. The dollar rate this week again broke the level of 74 rubles, for the second time in less than two weeks. On Tuesday, the Russian currency partially won back its positions, having risen to the level of 72.7 rubles, but still remains very cheap. Compared to early summer indicators, the ruble lost almost 10% of its value. And this happened against the backdrop of fairly strong oil prices and the de facto lack of a season of overseas vacations this year. Izvestia understood the reasons for this phenomenon.

Traditionally bad month

Summer and especially August were traditionally considered not the best month for the Russian currency. Suffice it to recall the collapse of the ruble almost three times after the default on August 17, 1998. But if we discard this extreme case, which is obviously not related to seasonality, it turns out that the ruble in August weakened almost always. For example, last year he “improved” from 63 to 67 rubles per dollar, while in the spring and autumn there was a positive trend. In 2018, the dollar also rose against the ruble – by about 8%. The last time at the end of summer, the ruble strengthened in 2017, and this was an almost exceptional case.

What is the reason? An important factor is the holiday season, before which citizens buy currency in large quantities. Street demand is inevitably reflected in stock quotes. Sometimes so much that it outweighs the external conjuncture, which is usually relatively calm in summer. In addition, the constantly repeated result forces traders to act out of habit: “in August, in all incomprehensible situations, sell the ruble.”

the airport

Photo: Izvestia / Alexander Polegenko

Now, however, this factor does not work. Most of the foreign destinations popular with Russian tourists are closed due to the ongoing epidemic, and they are in no hurry to open, given fears about the coronavirus and the instability of the economic situation in the country, when it is better to save money.

Is the conjuncture not in favor of the dollar?

At the same time, the conjuncture in recent weeks looked rather positive for the ruble. For example, the oil price stabilized in the summer, and recently for the first time in a very long time broke the $ 45 per barrel mark. At current prices, Russia is able to have a balanced budget, which means that this should have a beneficial effect on its currency.

In turn, the dollar itself had a negative trend against the basket of currencies. Since the beginning of July, the euro has risen in price from $ 1.13 to $ 1.18, that is, by almost 5%. The American currency was in the red against the Japanese yen, British pound, euro and some monetary units of developing countries. Turkey is a notable exception, but this is a very special case.

currency

Photo: Izvestia / Alexander Kazakov

In early August, the ruble weakened to its lows since May, twice during the week falling below the level of 74 rubles per dollar, the last time this happened on Monday, August 10. The next day, he won back the fall a little – largely due to the news that the Russian coronavirus vaccine had been approved (this news also supported the global stock markets). Nevertheless, the dollar remains at high, by the standards of early May-June, levels, while in reality it should cost a little more than 60 rubles.

Weakness is objective

And nevertheless, there are objective reasons for the current depreciation, not related to excessive caution of traders and other random market movements. As the leading financial expert of the School for the Study of Financial Markets Kira List noted in an interview with Izvestia, oil, although it grew in price, is still lower than the ruble-friendly figure of $ 50 per barrel. In addition, its growth in recent weeks is largely due to the weakening of the dollar against the basket of currencies of developed countries.

– Considering that all assets (against the dollar falling at a frantic pace) were growing rapidly, and oil showed a modest speed, we can conclude that oil did not grow so much as it fell more slowly than the US dollar. That is, if the dollar did not go to a steep peak, oil would fall. So far, there are no drivers for the growth of black gold, and hence the ruble from oil.

According to Sergey Drozdov, an analyst at the Finam Group of Companies, internal reasons played a decisive role in the weak ruble this summer.

central bank

Photo: Izvestia / Alexander Kazakov

– Despite the moderately positive dynamics of most emerging market currencies, which received certain bonuses from the recent weakening of the dollar in the global foreign exchange market, the internal agenda put pressure on the ruble. The factors that played against the Russian currency were a significant decrease in foreign exchange interventions by the Central Bank of the Russian Federation and the conversion of dividends received by foreign players from domestic companies into foreign currency. In addition, due to the rapid decline in the key interest rate, the ruble has lost significant support from the debt market, where the fall in OFZ yields dampened the interest of Russian and foreign investors in this instrument.

Mark Goikhman, chief analyst at TeleTrade, also speaks about internal drivers ensuring the fall of the Russian currency.

– The prices of oil and gas, although they have risen from the spring lows, are far from reaching levels acceptable for the economy. After all, the volume of exports of energy carriers and other goods has sharply decreased. Interesting is the latest data on the balance of payments of Russia for January-July 2020, published on August 11. From $ 46.9 billion to $ 24.6 billion, the difference between the receipt and disposal of foreign currency decreased over this period compared to the same period in 2019. That is, the current account surplus almost halved. This is primarily due to the fact that the trade surplus contracted by $ 44.4 billion – the excess of exports over imports. A more significant reduction in the supply of currency over demand leads to an increase in its price.

He added that the demand for the currency in August-September is likely to grow. First of all, it is bought in August by foreign shareholders of Russian companies, who have received dividends in rubles in recent weeks. These funds are converted into currency. The purchases of imported goods are also increasing as a result of the deferred demand of the period of self-isolation.

OFZs won’t last long

According to Kira List, the ruble may rise in the coming days due to investor demand for federal loan bonds.

– Demand for the ruble is starting to resume from foreign buyers of OFZ. Vacation has nothing to do with it – not the same volumes compared to the bond market. The last time – on August 5 – demand exceeded 265 billion rubles, although before that it could not break through the level of 200 billion. This suggests that interest in Russian securities is renewed. If on August 12 the demand for OFZs again exceeds 200 billion rubles, the strengthening of the ruble during the week will be more significant – perhaps even in the range of 69.5–71 rubles per dollar.

In turn, Mark Goikhman notes the fundamental factors that prevent the ruble from strengthening.

oil

Photo: RIA Novosti / Maxim Bogodvid

– Oil prices, which are already “high”, are unlikely to rise significantly. And that’s why. Tensions are escalating in trade and political relations between China and the United States, especially on the eve of the summing up of the first phase of the trade agreement on August 15. There are also concerns about the manifestations of the pandemic in the world – in particular, in Europe, the USA, Latin America. Since August, oil production has also increased by 2 million barrels per day by the OPEC + countries by agreement between them. The rise in prices is also helping to increase production by American shale producers. Thus, the oversupply overhang may persist in the short term. The state of the budget is also extremely important for the ruble. Its last year’s surplus, that is, the excess of revenues over expenditures, was replaced by a strong deficit, which could amount to 5-6% of GDP in 2020 according to the forecast of the Central Bank of the Russian Federation. These circumstances are powerful factors for the depreciation of the ruble. Moreover, in order to increase the flow of foreign exchange and increase the revenues of the budget and exporters, to protect the market for domestic goods, there is a reason for its somewhat artificial, even purposeful, weakening of the ruble in the future.

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