Ruble uses panic as an opportunity. Forecast as of 01.02.2022

Due to the threat of Western sanctions, the Russian currency has reserved a place among the main outsiders in Forex. However, an unsuccessful start does not scare the USDRUB bears. Let’s discuss the topic and make up a trading plan. 

Quarterly Russian ruble fundamental forecast

The Russian ruble proves once again that the expectation of death is worse than death itself. History shows that the USDRUB pair was actively growing amid rumors of Western sanctions, and then won back a significant part of the losses after their issuing. Something similar is happening now. Prices soared to almost a 15-month high due to the escalation of the situation around Russia’s allegedly impending invasion of Ukraine. Then they plummeted on the news that the US Senate was about to agree on a sanctions package before Russia entered the territory of a neighboring country.

Financial markets are relatively calm, despite the ruble turning from a beautiful swan, as it was for most of 2021, into an ugly duckling. It would seem that such a major geopolitical threat should lead to a sharp increase in demand for safe-haven assets. However, the yen, the franc, gold, and treasuries were actively sold after the January FOMC meeting. Either investors believe that there will be no Russian invasion of Ukraine, or they are confident that new sanctions will not provoke a tsunami in the financial markets.

The position of the ruble does not look as sad as during the accession of Crimea in 2014 or the recession of 2020. The reasons lie in the decline in the share of foreign investors in the Russian debt market from 34% at the beginning of 2020 to 20.5% in November 2021. The number of rats running from a sinking ship is getting smaller. Those who remain have doubts. Is it reasonable to get rid of the assets of a country whose current account surplus has grown 3.5 times from January to November 2021, international reserves have jumped to a record high of $630 billion, and the share of debt in GDP is more than a modest 17%? Wouldn’t it be better to use panic as an opportunity?

Dynamics of Russia’s gold and foreign exchange reserves

Source: Financial Times.

Dynamics of the National Wealth Fund and the share of non-residents in the Russian debt market

Source: Financial Times.

Russia’s GDP returned to pre-pandemic levels earlier than many others. Russia is the only major economy that is likely to balance the budget in 2022 and run a surplus in 2023-2024. No wonder Brent is close to $100 per barrel with a break-even point of $44 per barrel.

In my opinion, the worst for the ruble is over. My basic scenario implies that there will be no war, which means that the geopolitical risk embedded in the USDRUB price is too high. The Russian currency is undervalued in terms of oil. The strong macroeconomic performance and high local yields make the ruble’s reverse transformation from ugly duckling to beautiful swan very likely. Moreover, according to the consensus forecast of Reuters experts, the Central Bank of the Russian Federation will raise the key rate by another 100 bps on February 11, bringing it to 9.5%.

Quarterly USDRUB trading plan

The rapid growth of the global economy in the second and third quarters, the improvement in global risk appetite and demand for carry trade should contribute to the decline in USDRUB. As a result, the pair will be able to return to the zone of ​​73.5-74.5. I recommend entering sales and hoping the war doesn’t start.


Price chart of USDRUB in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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