USD/RUB forecast after the weak Russia inflation data

The USD/RUB exchange rate rose this week as concerns about relations between Russia and the United States rose. It also rose from its year-to-date low of 73.98 to 77.98 following the latest US and Chinese consumer inflation data. 

Russia and the US relationship

The USD/RUB exchange rate has remained under pressure following the deterioration in relations between the US and Russia. 

Donald Trump announced that the US would ship more weapons to Ukraine, and even explored whether Ukraine was comfortable launching attacks deep within Russia. 

Trump has also backed a new bill moving through Congress that would give him the power to impose additional sanctions against Russia. Since Russia is heavily sanctioned today, the new powers will have him impose secondary tariffs of as high as 500% on countries buying its products. 

Trump has become critical of Vladimir Putin for the ongoing war in Ukraine as talks have gone nowhere. Russia wants to retain the Ukrainian land it has already captured and to demilitarize the country. He also wants the US to rule out NATO membership.

Most market participants were expecting Trump to end the ongoing war in Ukraine within months. Such a move would have seen the US remove sanctions, which would have boosted the economy. This explains why the USD/RUB exchange rate has plunged in the past few months.

US and Russian inflation data

The USD/RUB exchange rate reacted to the US and Russian consumer inflation data released this week. A report by the US Bureau of Labor Statistics (BLS) showed that the headline inflation rose from 2.3% in May to 2.7% in June. 

The core US inflation, which excludes the volatile food and energy prices, rose to 2.9%. Therefore, analysts expect the Federal Reserve will maintain interest rates steady and possibly cut them in October instead of the much anticipated September. 

Another report from Russia showed that the country’s inflation dropped significantly in June. This decline was the first sign that the central bank’s battle against inflation was working. 

Still, data showed that the annual inflation was at 9%, much higher than the bank’s target of 4%. As such, the monthly decline means that the bank may decide to cut rates more than expected. 

The Russian Central Bank slashed interest rates last month, moving them from a record high of 21% to 20%. This has created a good carry trade opportunity, where traders borrow the US dollar and invest in the ruble. 

USD/RUB technical analysis

The daily chart shows that the USD/RUB exchange rate has rebounded from the year-to-date low of 73.98 to 78.50. It remains significantly lower than the 50-day and 100-day Exponential Moving Averages (EMAs), indicating that bears continue to hold control.

However, it has also formed a falling wedge pattern, a highly popular bullish reversal sign. Therefore, the pair may bounce back in the coming months and possibly retest the key resistance point at 84.70, the lowest swing in August last year.