Experts: the rouble became minimally responsive to the oil

MOSCOW, August 15. /Offset. TASS Nikita Zharkov/. The ruble exchange rate has become less sensitive to oil prices, and its dependence on the price movements of oil in July, according to the Central Bank of the Russian Federation, was near historic lows. According to experts, now the Russian currency is affected not only oil, but also inflation, balance of payments, economic growth and geopolitics. All these factors are mixed affect the rate of the national currency. The analysts believe that before the end of the year the dollar will continue to trade in the range of 56 to 65 rubles to the dollar, so the volatility of the ruble may increase.

According to the head of operations on the Russian stock market IR “freedom Finance” George Vashchenko, the dependence of the ruble from oil changes because changing the Russian economy. “The dependence on import, which caused demand for the dollar, and the dependence on inflationary expectations, when everybody was trying to save dollars – it is noticeably depressed lately. Exporters raised his head: “Gazprom” increased its exports by 19%, the price of Nickel is now $10 per ton. Exporters have not gone away, they exert pressure, therefore, indeed, the ruble strengthened a lot compared to oil, so such a change in correlation,” – says the expert.

In addition, the dependence of the ruble from oil is due to the growing influence of other factors, says Director for analysis of financial markets and macroeconomics UK “Alfa-capital” Vladimir Bragin. In particular, increased influence of the factor of the attitude of foreign investors to the ruble.

According to Bragin, after the Central Bank let the ruble float freely and stopped the intervention, there was a revaluation of the value of the ruble, which was established close to fair levels relative to oil prices. Although in the long term the ruble and oil change is unidirectional, it happens that oil for a few days or even weeks can move in the opposite direction from the dynamics of the ruble.

“That is the General trend there, but at the level of daily data, the correlation will naturally be low. And if you take the weekly data, the correlation will increase substantially. It’s not so much the loss of correlation, and that the nature of the relationship has changed. That is, the impact of oil became more smeared in time because there are many other factors that “salamlay” this effect,” says Bragin.

Geopolitics is still in play

However, there remains the influence of geopolitical factor on the exchange rate. However, this factor is revealed in different aspects, it is not only the impact on the ruble of US sanctions against Russia and reciprocal actions of the Russian Federation, but tensions between the U.S. and the DPRK, which affects the value of the dollar assets of developing countries.

According to chief economist of Alfa Bank Natalia Orlova, after the U.S. Congress voted overwhelmingly (419 out of 435) for the introduction of a new package of sanctions, but Russia has asked the United States to reduce the staff of the diplomatic corps, the market has lost hopes for an improvement of relations between Russia and the USA, which was a factor in the growth of the market in the first half.

“After more than six months, the presidency of Donald trump, it became apparent that the sanctions regime will remain for a longer time than you would expect. In addition, the probability of imposing new sanctions increases, and the possibility of renewed Russian-American dialogue begin to decrease. Although penalties apply to individuals and companies and do not affect the sovereign level, they still entail a new wave of negativity against Russian assets, which may discourage investors from the Russian market”, – says Orlova.

Another geopolitical factor is North Korea. Experts note that the market constantly monitors the development of relations of this Republic with the United States, but recently the severity of the tension subsided. It is noteworthy that despite the relatively stable dynamics of the Russian currency market, the net speculative position in the ruble has worsened with (-13,7% to -16,3%), says chief economist for Russia and CIS ING Bank Dmitry Polevoy. “In other words, the speculative component plays a decisive role in the Russian currency. This week, given some stabilization of the tension surrounding North Korea, look at the ruble moderately positive, given the approaching tax payments”, – said the expert.

According to the analyst “Discovery Broker” Andrei Kochetkov, the current week may be more successful due to the fact that “investors calm down about the “inevitable” war, the United States and North Korea. “With a relatively stable oil you can expect a slight strengthening of the ruble,” he adds.

A look into the future

Geopolitics, the dynamics of oil, the ratio of foreign investors in ruble assets, the dynamics of Russian inflation and current account – all of these factors have different impacts on the ruble. And according to estimates by Alfa Bank, the range of fair value of ruble shifted from 60-65 rubles per dollar to 56-67 rubles per dollar, which indicates an increase in the volatility of the exchange rate.

The upper limit of this range reached 67 rubles per dollar due to strong import growth, said Orlova, of Alfa Bank. “The rapid growth of imports and weak current account are the risks for the ruble exchange rate: in the past, the rapid growth of imports, what we are seeing now was observed at much higher oil prices and, consequently, a much stronger current account”, – says the economist.

The lower limit of fair value of ruble fell to 56 from 60 rubles to the dollar based on the comparable dynamics of industrial production of the USA and Russia. In particular, according to Orlova, the factors in favor of the ruble here by a slowdown of inflation, the acceleration of industrial production and the growth of Russia’s GDP in the second quarter. According to Rosstat, industrial production growth accelerated in yoy from 0.1% in the first quarter to 3.8% in the second quarter and was better than market expectations in April and may, while GDP growth accelerated from 0.5% to 2.5% in annual terms.

The slowdown in annual inflation in July to 3.8%, after an unexpected acceleration of the rate in June amid temporary factors, has led to increased demand for the ruble. “Inflation has slowed sharply, not only due to seasonal factors, but core inflation also came in below expectations. In the end we got a reduction of yields on ruble bonds and expectations of a stronger reduction in the key rate of the Central Bank for this year – for the ruble’s all pretty positive. Despite such a strange logic that would seem to mitigate the monetary policy should impact negatively on the ruble. In this situation it’s the reverse, because the reduction of the key rate has long expected. And it makes investors to form the corresponding positions in ruble assets, increasing the demand for the ruble and thus strengthening it,” says Bragin from the UK “Alfa-capital”.

In his opinion, to focus on short-term ruble is better based on how investors look at bonds (OFZ) and rates on ruble assets. The long-term view and the horizon of 12 months it is better to look for oil, he said. “Of course, with oil at $53 per barrel, the target value of the ruble will be somewhere in conditionally 58-59 rubles per dollar. If oil prices go below $45 per barrel, relatively speaking, we get somewhere 65-64 ruble. This is such a long-term target levels to which the ruble will rather have a tendency to strive for. But not the fact that he will have to reach them at the same time, as soon as the oil “stung” this level,” says Bragin.

According to estimates Vashchenko of IR “freedom Finance”, in the third quarter of the ruble, most likely, will be closer to the lower end of the range of 60-65 rubles, if the price of oil will remain close to the August highs. In favor of the weakening of the ruble by such factors as a decrease in the yield on ruble instruments, the reduction of the balance of payments, the reduction in demand of non-residents on the ruble in the second quarter and a recovery of imports and payments on foreign debts of about $23-27 billion, which will have to refinance and that will put pressure on the ruble, summarizes Vashchenko.