The Russian ruble has been grappling with multiple challenges in recent months, as the impact of western sanctions and fluctuations in energy prices take their toll. The USD/RUB exchange rate has surged consistently over the past six months, reaching its highest level since March 1st of the previous year. This increase amounts to a staggering 74% surge from its lowest point in 2022. The ongoing conflict between Russia and Ukraine, coupled with economic factors, has contributed to the ruble’s volatility.
Ukraine Conflict Continues:
The USD/RUB exchange rate has been influenced by the ongoing war between Russia and Ukraine. In a recent development, Ukraine launched a series of drone attacks in Moscow, exacerbating tensions. Russia swiftly condemned these attacks while disregarding the damage it has inflicted on Ukraine. Drone attacks in Kyiv have become increasingly frequent, indicating that the war is likely to persist in the foreseeable future. Despite international efforts, including mediation attempts by African and Chinese leaders, a resolution remains elusive.
Central Bank’s Decision and Economic Challenges:
The recent statements from the Russian central bank further impacted the USD/RUB exchange rate. During its July meeting, the bank opted to maintain its interest rate at 7.5%, a level it has maintained for several months. The central bank issued a warning about the economy facing a dual challenge: a continued shortage of skilled workers due to emigration and increased government borrowing to sustain the war efforts.
Budget Deficit and Windfall Tax:
Recent data revealed that Russia’s budget deficit is growing as commodity prices decline. Consequently, the government announced the introduction of a significant windfall tax to mitigate the deficit. The objective is to generate over 300 billion rubles to fund the ongoing conflict. While energy prices have shown some stabilization, with Brent crude oil trading at $75 and natural gas rebounding to $2.76, the gas price has experienced a notable 25% increase over the past 30 days.
USD/RUB Technical Analysis:
The USD/RUB exchange rate has made a remarkable recovery in recent months. On the daily chart, the pair has surpassed both the 50-day and 25-day moving averages, with the critical resistance level at 83.57 now acting as support. Additionally, the pair has risen to the upper end of the ascending trendline depicted in orange. However, it is currently stalled at the 38.2% Fibonacci retracement level. While the overall trend remains bullish, there is a possibility of a retest of support at 83.57, representing a decline of approximately 7% from the current level.
Conclusion:
The Russian ruble faces a challenging period as western sanctions persist and energy prices fluctuate. The ongoing conflict between Russia and Ukraine, combined with economic factors such as a worker shortage and increased government borrowing, continues to impact the country’s currency. While the ruble has experienced a significant resurgence against the US dollar in recent months, the prevailing circumstances suggest a potential retest of support levels. As the situation evolves, market participants will closely monitor geopolitical developments and economic indicators to gauge the ruble’s future trajectory.
