Triple Move

Economist Konstantin Tserazov discusses the factors influencing the Russian currency and whether the dollar reaching 100 rubles will become a norm. On Thursday and Friday, the dollar and euro exchange rates were monitored on the Moscow Exchange.

Economist Konstantin Tserazov talks about what affects the Russian currency and whether the dollar for 100 will become the rule. On Thursday and Friday, the dollar and euro rates on the Moscow Exchange accelerated their growth.

At the same time, the dollar rose above 100 rubles for the third time in a year; before that, the rate exceeded this mark on August 14 and October 3.

The euro traded above 106 rubles for the first time since August 16. Current market dynamics indicate that the demand for currency on the Moscow Exchange exceeds its supply. Therefore, we see the American breaking above 100, but the pair will probably not be able to gain a foothold there in the coming months. In order to understand the future prospects of the ruble, you need to understand the principles of formation of its exchange rate. To do this, you need to go back a few years, to 2017.

Since this year, the ruble has become cheaper in about 70% of cases when the Russian current account surplus declined, and vice versa. That is, if a country begins to import more goods and services than it exports, and overall less money comes in than goes out,undefined then this puts pressure on the Russian currency.

The dynamics of this indicator plays a very significant role in the formation of the exchange rate. We do not take previous years (before 2017) into account. Then the market showed abnormal dynamics, which were provoked by the events of 2014: the annexation of Crimea and the subsequent sanctions from the West. How is the ruble exchange rate formed? The Russian current account surplus has been consistently and rapidly declining from the peak it reached in the second quarter of 2022.

According to the Bank of Russia, the determining factor here is the reduction in the positive trade balance, this is the difference between the volumes of exports and imports in monetary terms. The total figure for January–August 2023 decreased by 68.3% compared to similar figures for 2022. Therefore, the approximate doubling of the dollar/ruble exchange rate, which occurred from the end of the second quarter of 2022 to the present day, looks quite natural.

The next monthly report of the Bank of Russia, which will contain undefined updated figures are due to be published next week. For now, let’s try to understand what could happen next to the ruble, based on the already available data. The contraction in the trade surplus in January–August 2023 was due to a sharp decline in the value of exports year-on-year (-31.8% y-o-y), as well as a significant increase in imports (+17% y-o-y). In addition, the deficit in the balance of foreign trade in services has more than doubled. The decline in exports was the result of two factors: a decrease in its physical volumes and a fall in world prices, for example, for energy resources.

The further dynamics of the first indicator does not look obvious against the backdrop of the risks of a global recession, which could lead to a reduction in global energy demand. The dynamics of the second indicator, on the contrary, inspires optimism, since world oil prices rose noticeably in September. The average price of the Brent benchmark in the period from January to August inclusive was approximately $80.5 per barrel versus $92 undefined in September. Against this background, the main Russian export mixture Urals has also risen noticeably in price: according to the Ministry of Finance of the Russian Federation, in September its average price was $83.08 per barrel compared to $74 a month earlier.

In addition to the increase in world oil prices, this was also facilitated by a reduction in the discount between Brent and Urals to $10.9 per barrel compared to $12.2 in August. Thus, other things being equal, exports from the Russian Federation in value terms should increase in the near future, since the risks of a global recession still remain only possible. However, a serious factor of pressure on the ruble here could be the sale of Russian energy resources for the currencies of friendly countries like the Indian rupee, which then hang up in foreign bank accounts without the ability to convert or use them. As for imports, they are likely to remain high for the foreseeable future due to the need to replace supplies.

At the same time, in the near future the demand for imported goods may decrease slightly against the backdrop of undefined growth of interest rates on consumer loans. The deficit in the balance of foreign trade in services may decrease in the coming months due to the end of the holiday season and a decrease in the flow of tourists from the Russian Federation abroad. Among other factors that could potentially affect the ruble exchange rate, one can highlight the rapid increase in the key rate by the Bank of Russia.

And also - verbal interventions in support of the Russian currency by representatives of various government bodies, including the President of the Russian Federation. However, the fact that the dollar is again storming the 100 mark just a month and a half after the pullback that began in mid-August suggests one thing: at least in the short term, the risks of the rate rising above this mark look high. If we talk about the horizon of the coming months, then the pair may well return to more fundamentally justified levels in the area of 90–95.

This will be facilitated by an increase in the supply of currency from exporters - especially if the problem with undefined hovering rupees. Or - a possible general weakening of the dollar, which looks heavily overbought.