Introduction

The past two years have been a roller-coaster ride for the USDRUB. The Rouble (RUB) was the worst performing currency in 2014 but it has had a remarkable turnaround and is now on of the best performing currencies in 2015 to date. This article looks at the state of the Russian economy and currency.

Russia’s economic indicators

  • Gross Domestic Product
With a population of more than 143 million people, Russia ranks in the top 10 of the global economies by GDP. According to IMF statistics the GDP in Russia stood at USD 2,709.13 billion in 2013 before shedding 31% to USD 1,857.46 billion in 2014. The GDP is expected to fall further in 2015 as the oil prices remain depressed, economic sanctions likely to remain in place and the geopolitical tensions least likely to ease in 2015. Fig 1 shows the GDP statistics for 2013 and 2014 as well as projections to 2020 (in white).

Fig 1: Russia’s GDP and GDP estimates

  • Inflation
Annual inflation rate in Russia slowed to 15.8 percent in May of 2015 from 16.4 percent in the previous month as increase in cost of food and housing eased. Fig 2 below shows the inflation developments in 2014 and 2015.

Fig 2: Russia’s Inflation

  • Interest rates and monetary policy
As a result of the rapidly rising inflation, the Bank of Russia dramatically increased its key interest rate to 17% in December of 2014. Since then, the central bank has cut the rate four times to 11.5% as oil prices stabilized and the rouble gained more than 12 percent to the USD. Fig 3 show the evolution of the interest rates.

Fig 3: Interest rates

  • Unemployment
Fig 4: Unemployment rate

The unemployment rate in Russia has been on a steady increase over the past year as shown in Fig 4 above. Russian jobless rate decreased for the first time in eight months to 5.8 percent in April from 5.9 percent in March.

  • Oil Production
The oil prices took a huge tumble in 2014. Some of the reasons for the fall are highlighted in the article https://www.dukascopy.com/fxcomm/fx-article-contest/?The-Oil-Story&action=read&id=2183. Fig 5 below shows the daily chart of Brent crude oil while Fig 6 shows the Russian Brent Crude oil production statistics.

Fig 5: Brent Crude oil Price

Fig 6: Oil Production stats

Russian oil and gas condensate production, remained at a post-Soviet record level of 10.71 million barrels per day in April, underpinned by a recent recovery in oil prices. With Russia increasing production it will highly unlikely for the OPEC countries to consider a reduction of supply for the fear of loss of market share to Russia and Non-OPEC producers.

  • Foreign Direct Investment
Fig 7: The Net Flows of FDI

The statistics in Fig 7 show that the FDI flows into Russia took a major fall in the last two quarters of 2014. Foreign direct investment flows to Russia fell as the conflict with Ukraine prompted companies to delay expansion. The trade restrictions and sanctions placed on Russia also led to a decline the FDI.


2014 Performance of the Rouble

In 2014, the RUB was the worst performing currency in the world. Fig 8 below shows the daily chart of the USDRUB in 2014.

Fig 8: The daily chart of the USDRUB in 2014.

As is evident in the chart the USDRUB took a significant fall in 2014, with the rate reaching highs of just under 80 from a January 2014 price of about 33. The fall was so great even consecutive rate hikes from the central bank would not halt the fall.

Reasons for the fall

  • The fall in oil prices
As highlighted earlier the fall in oil prices was a big contributor to the fall of the RUB. This fall in oil prices hit Russia hard, as about half of the Russian Federation's governmental revenue comes from the sale of oil and gas. In 2014, Russia needed an oil price of $100 per barrel to have a balanced budget. As the price of oil falls, due to the reduced profit from selling oil, the government has substantially lower income.

  • Sanctions and international isolation
Russia was hit by sanctions in 2014 making any international aid to Russia is unlikely as a result of the 2014–15 Russian military intervention in Ukraine. The sanctions are negatively affecting the Russian economy. The economic sanctions contributed to the decline of the RUB since Russian companies were prevented from rolling over debt, forcing companies to exchange their RUB for USD or other foreign currencies on the open market to meet their interest payment obligations on their existing debt.


Year to date performance of the RUB for 2015

However the RUB has had different fortunes in 2015 and is one of the best performing currencies in 2015 to date. Fig 9 below shows the daily chart of the USDRUB for the year 2015 showing the USDRUB strength.

Fig 9: The daily chart of the USDRUB in 2015.


Reasons for the rise

  • Intervention and Monetary Policy
On 15 December 2014, Russia had foreign currency reserves worth around $400 billion. On 15 December, the Central Bank of Russia spent almost $2 billion in an attempt to strengthen the declining rouble. On 16 December 2014, the Central Bank of Russia increased its key interest rate from 10.5% to 17%, creating volatility in the market as circled in fig 9. On 12 January 2015, the central bank's 2014 data of net currency interventions was reported by Interfax to have been $76.13 billion and €5.41 billion, including $11.9 billion in December 2014. In 2015, the Central Bank has cut interest rates several times several times as shown in Fig 3.


  • Capital Controls
The Russian government imposed capital controls to try and curtail the depreciation of the rouble. Some of the controls included measure that exporting companies should have brought their net foreign exchange assets back to the levels of October 1 2014 but the 1st of March 2015 and report to the central bank on a weekly basis. Though the measures were not official, they was a lot of moral suasion involved to curb the capital flight out of Russia and ensure that the rouble remains strong.

Technical analysis of the USDRUB

Fig 10: Daily chart of the USDRUB

The USD/RUB pair is trading above its upward trend line on a daily time frame. Using the simple moving averages and the chart shows that the price is trading above the 30 and 50 day moving averages shown in red and blue colour respectively. Moreover, the 30 day has also crossed the 50 day moving average from below, which shows another bullish signal for the price. The price will most likely progress as shown by the yellow line.
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