USD/RUB: Farewell to oil dependency – Nordea Markets

The latest sharp oil price surge confirmed that the RUB is much more dependent on EM risk sentiment than on the oil price, explained analysts at Nordea Market. According to them, trade talks appear to be the most important factor for the Russian Ruble. They forecast USD/RUB at 66.0 in 3M and at 66.5 by mid-2020. 

Key Quotes: 

“The attack on the Saudi Arabian oil network and the subsequent oil price upswing passed almost unnoticed by the RUB. The currency has gained less than 1% after the oil price surge, confirming that its link to the oil price has weakened substantially. On the other hand, the impact of the twists and turns in the trade war in August and September were felt in full by the RUB.”

“RUB’s resilience to oil price moves is partly a consequence of a rule-based budget policy since early 2017, which calls for saving oil revenues generated by the sale of oil above USD 40/bbl (indexed by 2% annually). Recent initiatives to use part of the extra oil revenues for financing purposes will surely decrease the pace with which these buffers are accumulated. The impact of these changes on the RUB will depend on the mechanism (currently still unknown) used to convert additional oil revenues to RUB.”

“On the monetary policy front, the Bank of Russia (CBR) recently cut its key rate to 7%, to the upper bound of the 6-7% range that the CBR has considered as neutral for quite some time. The CBR hinted that the neutral range may be reconsidered, effectively implying that 6% may no longer be viewed as the floor in the current easing cycle.”

“We keep our moderately negative view on the RUB. This largely reflects our overall cautious stance towards EM owing to the still non-negligible risk of US-China trade negotiations falling apart. The geopolitical risk premium in oil prices is likely to remain for some time and may slightly cushion the impact of potential negative trade talk developments on the RUB.”