USD/RUB: Is it safe to buy and hold the Russian ruble?

The USD/RUB pair held steady this week as the price of crude oil and other commodities rallied and after the US released strong inflation numbers. The pair rose to 93.55 on Friday, where it has been sitting for the past few weeks. 

Commodity prices and inflation

The Russian economy is doing well as the price of its key commodities rebound. Crude oil, Russia’s most important export, has soared to its highest point in months. Brent, the global benchmark, has already formed a golden cross pattern, meaning that it has more upside.

Most importantly, the price of Russian crude oil has remained above the $60 cap set by Western capitals. The implication is that Russia is making substantial sums of money as energy prices rise.

The only risk is that Ukraine has continued targeting some of its refineries, a move that is impacting the amount it sells internationally. 

Also, there are signs that some of the biggest buyers of Russian oil are starting to reduce their purchases. For example, some of the biggest Indian refineries have started buying Russian oil because of the elevated sanctions risks.

Russia is also benefiting as the price of natural gas stabilises. Data by TradingView shows that the price of natural gas was trading at $2. While this is much lower than where it was a few years ago, it is a few points above where it was in February.

Meanwhile, Russia is seeing substantial success in Ukraine, where it controls about a fifth of the country.  US military aid has stalled in Congress, putting Russia at an advantage as the war goes on.

Most importantly, the Russian economy is firing on all cylinders. The unemployment rate has crashed to a record low while the MOEX index has surged to a record high. Russia’s inflation is also easing while its industrial metals are soaring.

US dollar index is strong

The USD/RUB pair has stabilised as the US dollar index (DXY) continues rising. Data shows that the DXY surged above $106, its highest level since November last year.

The index jumped after the US published strong economic numbers. The economy added over 303k jobs in March while the unemployment rate dropped to 3.8%.

A separate report released this week revealed that the headline inflation jumped to 3.5% in March while the core CPI came in at 3.8%, almost double the Fed target of 2.0%.

Therefore, there is a likelihood that the Federal Reserve will either hold interest rates or hike them this year. Larry Summers has supported another rate hike since inflation remains at an uncomfortably high level.

The Fed is in a fix though since this is an election year. A rate hike would lead to criticism that it is supporting Donald Trump. On the other hand, Trump would accuse it of helping Joe Biden if it slashes rates.

USD/RUB technical analysis

USD/RUB chart by TradingView

The daily chart reveals that the USD to RUB exchange rate has crawled back in the past few months. After bottoming at 87 in January, the pair has jumped to almost 94. It is now sitting at a crucial level since the current price was at its highest point in December.

The pair has remained slightly above the 50-day moving average and is nearing the crucial resistance at 95.41, its highest swing this year.

Therefore, the outlook for the USD/RUB pair is bullish, with the next target to watch being at 95.41. A break above that level will open the possibility of it jumping to 100.