Russian Ruble is Losing Ground Again

By the end of last week, the ruble began showing instability having apparently lost the opportunity of regaining some strength, despite so-called the scheduled tax payment timeframe (end of month when exporters are required to convert their foreign currencies into ruble in order to pay taxes to budget) and CBR head Nabiullina’s vows to find ways to support it as ordered earlier by Kremlin.

As a result, the U.S. dollar began consolidating above the implied dynamic resistance (see chart above). From a technical standpoint, the breakthrough of the support level opens the way to horizontal static resistance – September peaks at 98.6 rubles/$1. In any case, at least the short-term ruble’s sustainability has apparently deteriorated, increasing the risk of gaining momentum towards the psychological level of 100 rubles/$1. This looks like a watershed, and the authorities will think about how to prevent devaluation expectations from growing again.

It turns out, that amid a lack of a principal solution and intensifying fruitless disputes, all previous initiatives of the Central Bank and ministries only suspended the ruble's fall and did not contribute to its meaningful recovery. The Central Bank’s key rate was raised to 13%, limits on unsecured loans were introduced, "conversations" with the “misbehaving” exporters were conducted – this should have curbed the credit boom, reduced demand for foreign currency and increased supply. And the seasonal outflow should slow down.

Nevertheless, in reality, the effect of monetary efforts was mixed at best, and the imbalance of high currency demand and low supply persists. Interestingly, unlike back in Spring, the volatility of ruble caused by foreign currency deficit now has very little to do with the ruble's fundamental exchange rate, which is assessed by dynamics of the country’s trade balance, its budget, interest rates and purchasing power parity. Assuming an imminent takeover by rationality, the ruble exchange rate is capable of returning to 90, so the current surge might be largely speculative.