Since February, Russia has been everywhere in the news, so it’s hard to notice. The same holds true for its money. In any case, nearly everyone in the rate knows what’s been going on. Let’s take a look at the rate in terms of the dollar and the ruble. If you look at the history of the USD/RUB rate over the last ten years, you might notice that the price has changed in a way that is always related to the price of oil.
It shouldn’t be a surprise because Russia is the world’s largest exporter of oil products and the third largest oil producer after the US and Saudi Arabia. Russia’s largest income from international trade comes from selling oil and gas.
After what happened in February 2022, the US and its European allies put economic sanctions on Russia. One of these was a cap on the price of Russian oil that went into effect this month. These are the harshest steps because Europe obtains most of its energy from Russia and is its key oil market. The agreement states that Russian oil shipped by sea can cost no more than $60 per barrel. Some European countries, like Poland and the Baltic States (Estonia, Latvia, and Lithuania), wanted to go after Russian money more aggressively by setting a much lower price cap.
In actuality, the ban has less to do with the acquisition of oil and petroleum products in Russia than it does with their insurance and maritime transport. The United States and its allies are optimistic because they believe Russia would have a hard time finding suitable replacements for London insurers and Greek ships.
In response, Russia stopped selling oil to the countries that backed the price cap and turned its attention back to countries that followed the market pricing policy. India and China, in particular, have been buying more crude oil from Russia because it is cheaper on the market. According to the Bank of Russia’s trade statistics, the value of Russian exports in the first nine months of 2022 was higher than the value in the same time period the year before. Most traders use an economic calendar to keep track of events that affect the market, which this year have been enough to sink a battleship.
Even though the West put sanctions on Russia, the ruble did well enough to become one of the best currencies in the world. Over the past year, the USD/RUB pair has changed a lot. In February 2022, the USD/RUB rates went up by more than 36%, and in March, they reached their highest level ever, at 154. The Russian government put in place capital controls to protect its currency. This caused USD/RUB rates to go down, and then the USD fell against the RUB by more than 20%.
The Russian currency has held its own against the severe western sanctions for nearly a year, but it has just fallen past 68 to the dollar.
And when compared to the euro, the rouble has dropped by more than 4%. The Russian stock market is also down. The $60/barrel cap and currently low oil prices aren’t enough to encourage exporters to get moving, so if they don’t, the price of petroleum may easily rise to $70/barrel in a time of months.
Due to its emergency measures, Russia’s economy was spared the brunt of the Fed’s rapid rate hikes, unlike most other currencies. The need to pay for imports in rubles has also contributed to the demand in demand for Russia’s national currency. The strength of the Russian currency may be seen as fictitious by some. Perhaps, but as long as it succeeds in establishing economic economy, the result won’t change.
What can we expect from this powerful duo in the coming year?
When the EU ban on crude oil and refined products from Russia goes into effect, it will definitely have an effect. Even though there are buyers who are willing to buy Russian oil at a discount, they are likely to face restrictions. This means that the supply of Russian oil will drop over the course of 2023. This will not only hurt Russia, but it will also make the oil market tighter for everyone.
Since there have been so many setbacks, we should expect the embargo’s effects on the ruble to start showing up somewhere in February or March. However, energy demand is often highest at the start of the year, while consumer demand is lowest following the holiday season. Thus, a significant depreciation of the ruble to start the year seems unlikely. However, the embargo will result in a lower trade surplus next year, but one that is still sizable.
More and more people in 2022 are becoming proficient in the world of currency market.
As a result of the sanctions, Russian imports fell substantially, causing a drop in demand for foreign currency within the country. Foreign currency purchases are now prohibited according to Central Bank regulations. The outcome was a significant rise in the value of the ruble as the demand for U.S. dollars and European currency dropped in Russia. This pattern will continue till the year 2023. The outflow of capital is something that investors should keep an eye on in 2023. If geopolitical conflict increases and becomes the economy’s main driver, this element may trigger the currency market’s supply-and-demand imbalance and devalue the national currency.
The Bank of Russia forecasted a recession in the country, that would entail an additional drop in the prices of oil, metals, fertilizers. And other goods that the country exports, and expected positive GDP growth to start from the second half of 2023 at the earliest. The long-term dollar to ruble forecast says that in the same period next year, USD/RUB is expected to trade at above 80 and get back to 60 by 2025 at the earliest.
We ask you not to take this market analysis as a call for action. Forecasts can be wrong and before stepping into trade you should always conduct your own research. This is rule number one, and it should never be forgotten.