USD/RUB: Constructive rouble view despite recent volatility

“Our core view is that the tension between the US and Russia, which has been a key driver behind the cheapening of the rouble against oil prices since the middle of 2020, is going to remain in check for now. This should pave the way for markets to reduce the roubles sanctions risk premium.”

“The rouble is likely to benefit from rising carry as the central bank is determined to continue to raise its policy rate in order to tackle inflation. Meanwhile, we think that the risk to oil prices remains skewed towards the upside. We take the view that the stalemate in OPEC+ talks is not going to translate into a breakdown of last years agreement.”

“We refine our short-term USD/RUB target by raising it to 72.00 (from 71.00 previously). Our previous 71.00 target looks too ambitious as a short-term target after the sell-off in the rouble last week. We now find it difficult to see USD/RUB break below its mid-June lows of 71.55 in the short run as investors currently seem reluctant to sell the USD in a broad-based manner like they did throughout most of Q2 2021.”

The main risk to our constructive view on the rouble arguably comes from the possibility of a deterioration in the relationship between Russia and the US. In case markets price in a scenario with new substantial sanctions, USD/RUB could break above 78.00 to new year-to-date highs in a relatively short period of time.

“Absent new important sanctions developments, we would be sellers of USD/RUB on spikes to the 76.00 area, assuming that the spike would not be accompanied by a sizable drop in oil prices.”

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