Russian ruble world’s best performing currency this year

By:
on May 16, 2022
Updated: Aug 4, 2022
  • Russian Ruble continues to strengthen, now up 15% on the year against USD
  • A revisiting of last month's analysis which assessed whether Ruble was worth shorting
  • Currency not freely floating however, with Russia manipulating it to protect the value

I wrote this article last month examining the Russian ruble’s performance, which was highly unusual, and whether it could be a short opportunity going forward. Following a 40% plummet after the invasion commenced in late February – when economic sanctions were first levelled against Russia – the currency had rebounded all the way back to where it was pre-invasion and was trading at 80 rubles per dollar.

Revisiting the analysis a month later, it’s strengthened even further – to the point where it is now the world’s best-performing currency this year, now trading at 64 rubles per dollar. This is remarkable given one of the main aims of economic sanctions was to strangle the ruble.

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Up 15% against the dollar this year, the reasons for the surge remain the same as outlined last month. Most importantly, this is not a freely floating currency; it is subject to stringent capital controls. Additionally, natural gas continues to be sold in Rubles, while exporters of goods are legally required to convert the payments into Rubles.

Market manipulation of currencies in times of “crisis” is nothing new, however the success of Putin’s policies here is quite something. Argentina and Turkey are two recent examples of how difficult it is to maintain a currency’s value when the market starts to push against it.

Whether the gains are 100% genuine is another matter, however. Many currency desks have suspended trading on the ruble, citing that the quoted price – as per the above graph – is not what is available in the markets. This comes back to my point in last month’s article, that regardless of whether you believe the Ruble is overvalued and maybe a short opportunity, this is an investment that is very difficult to make.

Moreover, with the dollar itself surging, the appreciation of the ruble against other currencies is even more impressive. Most poignant is the euro – which as the graph below shows has now depreciated 21% against the ruble.

Putin is putting full weight behind the support of his native currency, and until this manipulation ceases – which doesn’t appear to be happening anytime soon – or there are developments with other nations regarding oil and gas  – which again, is difficult to kick into action in reality – this narrative won’t be changing anytime soon.

The Ruble’s gains may not be authentic, but regardless, by the numbers it is now the world’s best performing currency in 2022, and momentum does not appear to be slowing down.

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