The ruble continues to benefit from rising oil prices

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Mikhail Shulgin, "Discovery Research" 11 October 2021 16:57

Last week, only 9 out of 24 emerging market currencies strengthened against the dollar. Ruble per week +1.2% to the dollar, +1.4% to the euro — the leader of growth among 24 Emerging Markets currencies. USDRUB formed the minimum of the week at 71.65 - 10 cents above the minimum of 2021. EURRUB fell to 82.83 - the minimum since July 2020. The ruble is the beneficiary of the carry trade, as well as high oil and gas prices.

Russia is an energy exporting country. It is difficult to imagine a more favorable external environment for the seller of oil and gas. At the same time, the price of Brent in ruble equivalent rose to 6 thousand rubles per barrel, which is an absolute record. The Bank of Russia is acting proactively by raising interest rates. The money market is set to raise the key rate to 7.5% by the end of the year. One way or another, but there is a chance that the real rate in the Russian Federation will enter positive territory in the coming months, especially given that inflation in the basis may begin to decline year-on-year in October and November, and the strengthening of the ruble further stimulates the weakening of price pressure. Other central banks of EM countries are also raising rates, but in most cases it is quite a long way to reach a positive real yield.

At the same time, the main driver of the ruble's strengthening is oil prices, but there is a budget rule that significantly smooths the impact of oil prices on the exchange rate of the Russian currency. Thus, from October 7 to November 8, the daily volume of purchases of foreign currency under the budget rule will be equivalent to 15.1 billion rubles. Therefore, we expect that the strengthening of the ruble against the dollar will be limited. 70 rubles per dollar looks like a possible short-term target if oil prices consolidate in the range of $85-$90 per barrel. At the end of the year, the rate is more likely to be around 71.50-72.00. At the same time, the potential for strengthening the ruble against the euro is higher. Here we can see 81-82 per unit of the single European currency, a short-term decline to 80 rubles per single currency is not excluded, which has not been since mid-July 2020.

Today, on October 11, Columbus Day is celebrated in the USA. The key economic indicator of the coming week will be the publication on Wednesday of the US consumer price index for September. In June, consumer inflation in the United States reached a 13-year high at 5.4%, remained the same in July, and fell to 5.3% in August. Inflation is also expected to reach 5.3% in September, which will indicate the formed peak of inflation and the Fed's correct thesis about the temporary nature of price pressure.

We assume that the dollar index has formed a strong support in the area of 93.80-93.75 p. A correction to this support may be the starting point for new long positions. We expect that the dollar index is able to rewrite the annual highs, which now amount to 94.50 p. (September 30).

Mikhail Shulgin, "Discovery Research", Head of the Global Research Department "Discovery Investments"

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