Rouble Appreciates as Oil Climbs

on Jul 2, 2012

After experiencing a steep decline, the rouble appreciated to its strongest position in a month, Bloomberg reported on 3 July 2012. The rouble gained 1.4 percent to 32.1500 per dollar, which is its highest level since May 28. The reason for the positive performance of the Russian currency lies in the observed increase of crude oil prices, with oil and gas accounting for approximately 50 percent of Russia’s state revenue. Crude oil climbed with 0.8 percent in New York, reaching $84.40 a barrel and extending its 7.8 percent jump in the last two sessions.

This in turn had an impact on the performance of the Russian currency which, according to Bloomberg data from July 3, appreciated 1.1 percent to 40.5400 per euro. In addition, investors lowered bets that the currency will weaken, with non-deliverable forwards showing the rouble at 32.6590 per dollar in three months, relative to investor expectations of 33.1198 per dollar from the previous day.

!m[](/uploads/story/148/thumbs/pic1_inline.png)The upward trend for the rouble comes after the Russian currency depreciated to 32.5997 per dollar by the close in Moscow, as reported by Bloomberg on July 2. This was the steepest decline since June 22, with the rouble weakening with 9.2 percent in the second quarter. The rouble’s decline was naturally related to the price of oil, which on July 2 retreated 2.3 percent to $83.02 a barrel in New York, mostly due to data showing record unemployment in the Eurozone.

The current crude oil prices, which, as already noted, have an impact on the rouble, are also a result of Eurozone-related news. Oil appreciated mostly on account of anticipated stimulus measures in Europe, following the EU summit at the end of June. The EU leaders reached an agreement to allow the Eurozone bailout fund to directly recapitalise Spain’s banks and to purchase Italian sovereign bonds. Another element of the Eurozone deal is a future system of European banking supervision via the European Central Bank (ECB). The ECB on the other hand is expected to cut its interest rates to stimulate demand.

Bloomberg also reports that a state-owned Chinese newspaper wrote that the time was ripe for a reduction in banks’ reserve-requirement ratios, which implies monetary easing. This speculation also had a positive effect on oil prices and, by implication, on the rouble as well. In addition, the US Federal Reserve is also expected to introduce stimulus measures. Although investors recently had similar expectations, which the Fed failed to meet, new data about US employment deterioration might tip the scales in favour of more decisive stimulus measures.
According to Citygroup Inc, as quoted by Bloomberg, the rouble is going to trade in the range of 37 to 38 roubles against the basket in the second quarter. “Basket appreciation below 35 rubles is very unlikely even if the oil price recovers to $110 in the third quarter”, Citygroup analysts, led by David Lubin, said in an e-mailed research note.


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