Putin faith in the Russian Ruble? Chris Tevere, CMT, Senior Technical Strategist FOREX.COM 8 January 2013 The ruble has gained in popularity in recent years. It is considered part of the well-respected emerging BRICS economies and appreciated nearly 10% versus the US dollar in the second half of 2012. This is our preview of what to expect from the ruble in 2013. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Services Authority (FSA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan
The Ruble: a potted history The first thing to know is that it has a tumultuous past. The Russian economy fell on hard times following the breakup of the USSR, which culminated in the 1998 financial crisis. Traders who were short the ruble at the time likely benefited significantly as the Ruble lost 70% of its value against the US dollar in just six months. The ruble is extremely sensitive to global growth. Back in 1997 the Asian crisis caused a crash in demand for Russia s main exports; energy and metals. The resulting price-shock was enough to destabilise an economy with declining national productivity and a long-standing large fiscal deficit. Investors lost confidence in Russian assets and sold en-masse. The Bank of Russia didn t have the currency reserves to maintain the peg against the US Dollar and the Russian government devalued the ruble. Since then Russian asset prices including the ruble have recovered, so has the Russian economy. But with the global prospects for 2013 not looking much rosier than that of 2012, an external economic shock that could rock the Russian economy is still possible. Ruble traders need to assess the risks of history repeating itself. Global growth along with a couple of other factors will most likely impact the direction of the ruble in 2013. These include: central bank action as well as the economic and political situations. We will now take a closer look at the potential drivers of the ruble this year. Russia s domestic economic situation in 2013: Russia s economy is still largely dependent on its energy exports, which make up nearly 10 percent of Gross Domestic Product (GDP). However, oil flows have helped its budget deficit to remain stable, it is currently - 0.4%, which is a much healthier position than some western economies. Due to its reliance on oil revenues, the Russian economy is particularly sensitive to changes in global growth. Thus any fears about the US or European economies this year could weigh heavily on the ruble. However, the downside risks may be limited as Russia s oil flows have helped it to amass a large pot of money that could be used to help the economy if the global situation deteriorates. FX and gold reserves have been recovering since the financial crisis and remain close to their highest levels for four years. Russia s reserve fund held steady at $61.4 billion in 2012, which is a hefty war chest. This is important for traders in two ways: 1, it means that the government and central bank could use these reserves to weaken the ruble if there is another economic crisis in 2013. 2, in the longer term solid reserves may help the Russian economy to recover in the event of a slump in growth, which could limit the downside pressure on the ruble if an economic crisis does occur. Putin faith in the Russian Ruble 2 / 5
Russian GDP has trended lower in 2012, but 2.9% GDP in Q3 2012 is a respectable level of growth. Added to this the government believes the economy may recover in the middle of 2013, as long as there are no external shocks. Thus, ruble traders should look for signs that the economy is picking up in Q1. Potential central bank moves in 2013 Russia was the largest emerging economy to raise interest rates in 2012, in an attempt to keep inflation under control. However, in December it took steps to ease policy and cut the cost to swap foreign currency into rubles by 0.25 bps to 6.5%. The Bank called this move neutral for monetary policy, and such a small amount of easing suggests that the Bank is not about to embark on an aggressive easing policy any time soon. If the Bank says it is embarking on neutral monetary policy then it suggests that it is more comfortable with inflation, which seems to have peaked around 6.5%. However, if inflation spikes higher during the first quarter of this year then we may see rates continue to rise in 2013. Higher rates usually boost a currency, but if rates are rising because of inflation fears then rate increases may have a limited impact on the ruble. Russia operates a managed floating exchange rate regime. The Bank of Russia widened the floating operational band' of the permissible values of the Russian ruble against a basket containing the euro and US dollar from 4 rubles to 6 rubles in 2011. We believe that if the global economy stabilises in 2013 and GDP starts to strengthen then we may see Russia continue to liberalise its exchange rate policy in the coming months, however we don t believe there will be any policy changes in the foreseeable future. Political situation: Elections last year saw Vladimir Putin return to the Presidency. Although there were protests about his candidacy, in the aftermath of the March 2012 elections, they had died down by the end of the year. Accordingly, we view political risks as being fairly low in Russia, at least for the first half of 2013, however there is always the potential for social discord. If there is a flare up in political or social tensions this year then we may see the ruble suffer. Technical Outlook for the Ruble: Towards the end of November we saw USD/RUB take out a key level of support around 31.00/2500, which saw the convergence of the 55 & 200-day sma s as well as the bottom of the daily Ichimoku Cloud (see exhibit 1). This set the stage for a test of the 100-week sma as well as trendline support, drawn from the 2011 low, around 30.5000. Interestingly enough, USD/RUB ended up following weekly RSI, which broke below corresponding trendline support in advance to price, as it took out the noted 30.5000 level as well as the September 2012 low near 30.3800 at the end of 2012. Should USD/RUB break below the psychological and Putin faith in the Russian Ruble 3 / 5
option related 30.0000 level, then a test of 29.8225/60 may be in order (see exhibit 2) Sees convergence of 61.8% retracement (using 2011 low & 2012 high) and 50% retracement (using 2008 low & 2009 high). Beyond there, the next support levels we see are: 29.6000 Trendline support drawn from the 2008 low 28.85/8600 2012 lows 27.14/1500 2011 lows Exhibit 1 Chart Source: Forex Charts by esignal Putin faith in the Russian Ruble 4 / 5
Exhibit 2 Chart Source: Forex Charts by esignal Putin faith in the Russian Ruble 5 / 5