What’s happening with dollar: expected fall to 60 rubles?

Today I would like to talk about what to expect from the dollar in the near future. A lot of analysts think that the dollar rate against the ruble reached the peak in 2020 topping 80 rubles. And now, thanks to the beginning feedstock supercycle, the ruble can stay at 60 rubles per dollar. The weakening of the US currency against all big currencies also plays into our hands.

Russia

Today’s situation resembles the way events unfolded in the early 2000s when there was a boom of growth of feedstock prices with years of an accelerated rise of feedstock and export-oriented economies of the world.

We can already certainly say that we are at the beginning of a new cycle, and several years of accelerated growth against this backdrop await Russia. GDP will increase by approximately 50%. From 2003 to 2008, the ruble went up by 25%, consequently, if we base on the rate of 80 rubles per dollar, we should expect the rate to reach 60 rubles per dollar.

A tighter monetary policy around the world (to fight inflation that will inevitably speed up amid the “rain” of anti-COVID-19 money) is another factor. Global investors will be interested in the ruble precisely because of higher rates of state bonds in our market. And to invest money, they will buy assets in rubles, thus supporting the demand for our currency.

Because now, in fact, nobody needs the ruble, even our exporters prefer keeping their currency revenue in a foreign currency converting it only for the most urgent needs. If you remember when the ruble collapsed because of the sanctions after 2014, one of the first decisions of the Central Bank and the government was to oblige exporters to convert up 100% of their currency revenue. A stronger ruble will give our large companies more stimuli to sell the currency they hold because fewer rubles will be needed for buying back in the future.

Because now, in fact, nobody needs the ruble, even our exporters prefer keeping their currency revenue in a currency converting it only for the most urgent needs

Another factor that will help make the ruble rate stronger is the growth of the Russian stock market. Though it is far from its historic lows in 2008, given current greatly underrated evaluations of companies (the same geopolitical discount in action) with explosive growth of feedstock prices, the rates of our blue chips can soar lugging the rest of the stock market. If there is growth, there immediately appear interested sides in the form of bonds with hard currency in the pocket that needs to be sold and buy rubles to purchase Russian shares, again, supporting the demand for our currency.

USA and Eurozone

The dollar as the world’s currency depends on both domestic affairs in the USA and the state of the country’s economy.

At this moment, we can say that the post-COVID-19 recovery is taking place with difficulties — the macrostatistics that have been recently made public are very contradictory. Fiscal incentives raised inflation and broke the balance in the employment market where there is no growth. The consumer mood index fell to a three-month low of 82,3, this number turned out to be below even the most pessimistic forecast of Bloomberg. Inflationary expectations are 4,6% a year, and half of the population waits for inflation to be even more than 5%. Apparently, the era of low prices in the USA has ended, and the economy will grow chaotically, even though Biden’s $4-trillion package is on.

Given the unpromising macrostatistics, the profitability of treasury bonds skyrocketed (a sign that risks increased), and the S&P 500 index fell deeply. Now, much will turn on the US FRS’s actions, it will have to decide to raise the key rate in the fight against inflation and simultaneously hurting the economy that hasn’t recovered yet. In any case, it will take a couple of months to observe inflation numbers and employment to scrap the policy of easy money. The FRS is carefully tracking the so-called personal consumption expenditures (PCE) price index. It is a statistical indicator for consumption in gross domestic product (GDP) collected by the US Bureau of Economic Analysis (BEA). It consists of real and prescribed expenditures of households and includes data on long- and short-lived commodities and services. In fact, it is an indicator of commodities and services designed for natural people and some other individual consumers.

Now much will turn on the US FRS’s actions, it will have to decide to raise the key rate in the fight against inflation and simultaneously hurting the economy that hasn’t recovered yet

If the PCE price index exceeds 2,8% in the next three months, the FRS will immediately raise the key rate. In March, this indicator was equal to 1,8%. Meanwhile, the Eurozone looks much stronger, therefore there is a gap between the euro and the dollar. Accelerated vaccination inspires hope for a faster recovery of EU economies that have already upgraded GDP growth outlooks from 3,8% to 4,3%. Germany is waiting for the introduction of fiscal incentives on a scale comparable to the US, which will additionally reinforce the integration of the Eurozone. The recovery of the upward trend for the euro and dollar will be gradual. And if we see the opposition is broken by 1,211, we can start creating long positions.

In conclusion, I would like to note that even not a temporary weakening of the American currency will be the reason for a stronger ruble rate against the dollar. The US economy is a well-managed machine producing plenty of goods and services, and it is naive, like many do here, to expect it to collapse all of a sudden in a year.

In our case, the ruble will be getting stronger in the next few years thanks to the effect of the low base in feedstock prices. A rise in exporters’ currency revenue will lead to a bigger amount of tax payments in the budget, which will fill Russia’s economy with so much needed money in its “Keynesian” manner. Monetarism and the free market don’t work in contemporary Russia, only public funding can accelerate the economy’s development. The multiplier effect of such expenditures is hard to underestimate.

By the way, one shouldn’t hurry up and buy a new car and smartphone, do this in 1-1,5 years — the prices will be 15% lower. Agree that you won’t be able to feel like a human being like you did when the dollar was 30 rubles, but it isn’t bad to have 55-60 rubles.