‘The ruble became a captive of the refusal of settlement in ‘unfriendly currencies’’

09:00, 11.10.2023

The Russian ruble fails to strengthen its positions against dollar. The next escalation of the Israeli-Palestinian conflict just exacerbated the situation. And this happened despite the growth in global hydrocarbon prices. On Monday, 9 October, the dollar updated its record high since March 2023 during the trading session at Moscow Exchange reaching 102.26 rubles. By the end of the day, the Russian currency managed to bounce back — the rate totalled 99.3 rubles per dollar, which is even better than the result on Friday, 6 October. Then, the trading session closed at 100.41 rubles for the American currency. However, on Tuesday, 10 October, the ruble fell again. At the start of the session, the rate amounted to 100,14 rubles per dollar. At some moment (10.40 Moscow time), the dollar cost 100.68 rubles.

Experts surveyed by Realnoe Vremya explain the ruble’s fall was long as a result of the refusal of settlement in “unfriendly” currencies and there is no belief that high global oil prices will provide it with support.

“World oil prices and a notable rise in Russian Bank’s key rate to 13% a year haven’t yet provided sustainable support for the Russian currency. Just local periods of ruble appreciation are seen in the domestic currency market but they don’t lead to a mid-term weakening trend,” experts say.

War, oil and falling ruble

The Russian currency decreased against the Chinese. A day earlier, a yuan cost over 14 rubles at the exchange, which hadn’t happened since 30 March 2022. However, the Turkish lira also set a historical anti-record by surpassing 28 liras per dollar at some point.

“The dynamics of the ruble and Turkish lira have different factors for depreciation. Oil rice growth is bad for the lira, since the country import most of oil it consumes, which worsens its trade balance. As for the ruble, previously, oil price hike used to be good for the Russian currency. But not anymore because 42% of all Russian exports are paid in rubles. The ruble became a captive of the politics our authorities have been nursing in the last a year and a half: the refusal of settlement in “unfriendly” currencies and a shift to rubles. The country lacks hard cash, while a deficit gives rise to a higher rate against dollars, euros and yuans. The yuan rate rise to 14.00 rubles has to do with two factors. Firstly, today there is a general weakening of the ruble against all key currencies traded at Moscow Exchange,” thinks analyst of Finam Alexander Potavin.

Secondly, the appreciation of the Chinese currency against the Russian is backed by the yuan rate’s general strengthening around the world after Chinese exchanges opened after long holidays, he says. According to Potavin, if there are local corrections in the CNY/RUB rate, significant measures taken by the Bank of Russia and the Ministry of Finance to strengthen the ruble will be local.

Stock market expert of BCS World of Investments Mikhail Zeltsev is more optimistic.

“The devaluation of the lira and the ruble have something in common, but there are critical differences too: the currencies are falling amid spurring inflation in the countries, but the lira isn’t an export currency, while the ruble is linked with feedstock dynamics. But Turkey isn’t under sanctions, whereas we are totally restricted. The rise in feedstock rates in general play into the ruble’s hands because Russian is an exporter. And for the lira this is bad, they import resources. The Central Bank is raising rates amid an overheated credit market, devaluation and inflation. The effect of these measures isn’t quick, while the connection with the Near Eastern conflict isn’t obvious at all,” the analyst says.

As Zeltser stressed, the currency fluctuation on 9 October was synchronised, while the yuan dynamics weren’t different from the dollar, euro, Hong Kong currency, and this was followed by huge correction by 4%: “Compared to high yuan turnover at the exchange, this is an effect of pent-up buy and sell orders after weeks-long holidays in the PRC and the resumption of settlement and trading of currency pairs at Moscow Exchange.”

Now the stock market forecasts that the expectations boil down to the stabilisation of the ruble rate, and if there is a lot of uncertainty in the short term, in the mid term, we expect the dollar to near 90 than be over 100 by the end of the year. The lira will sooner or later stop its collapse against the dollar, and during the correction stage it can even temporarily approach 25 with being at 28 now: the question is only about what level weakening will start there.

“Pending” oil

“If oil continues going up in price, this will support the ruble rate, but very indirectly because this factor has recently lost its direct impact on the rate. As for the Turkish lira, we can say the growing oil prices are a factor of its additional weakening for the Turkish currency because this increases import rates,” noted Oksana Likusheva from Finam.

However, things aren’t that obvious.

“Amid the events in Israel, oil went once 3.5% up (Editor’s note: on Monday by 7.45 am Moscow time, the price for December Brent futures at London’s ICE demonstrated a 3.57% growth, to $87.6 barrels, 3.8% rise for November futures at WTI, to $85.94 per barrel) — the markets were nervous because of military actions in a big oil region. At this moment, Israel’s militaries took the situation in borderline cities under control, which already started to reduce the level of risks and the strained situation. At the moment, the escalation of this conflict doesn’t carry any obvious risks to oil supplies. Infrastructure hasn’t been damaged either. But the market considers any military actions in a big oil producing region as higher risks to suspend supplies in the case the conflict goes beyond the territory of Israel and new sides are involved in the military actions,” said Lukicheva.

As Finam’s expert notes, there developing an ambiguous situation with oil supplies from Iran too.

“Due to the USA’s softer sanctions pressure on Iran, oil exports from this country have been actively growing since May 2023. According to Kpler, the supplies grew from 1.35 million barrels a day in May to 1.79 million barrels a day in August, which is the highest indicator since November 2019. Since the agreement of OPEC+ on Iran doesn’t apply, the appearance of these additional amounts to the market seriously reduced the efficiency of OPEC+. Even though Iran denies its involvement in HAMAS attacks on Israel, the attitude of the USA to the situation can change. Around 500,000 barrels of oil a day turned out to be at risk of leaving the market, which can support the market’s return to high prices,” concludes Lukicheva.

Galiya Shakirova