The Russian Ruble, now close to a multi-year peak against major currencies like the EUR and the USD, is the strongest performing currency in the world so far this year, despite the tough economic sanctions imposed by western governments since the country invaded Ukraine. Will the Ruble keep strengthening? It is possible…
Russia’s currency was only buying USD 0.0079 at its lowest level after Ukraine’s invasion and the international rounds of sanctions that followed. However, the currency has undergone an impressive reversal and made a spectacular comeback to become today the best performing currency of 2022!
Even though the USD/RUB Forex pair was reaching a multi-year peak at around 54 at the time of writing, some analysts expect the local currency to keep strengthening and the currency pair to keep falling, as companies in the country will soon have to pay their taxes.
As many Russian companies rely on exports, they receive revenue in USD, in EUR or in other currencies, which means that they have to convert foreign currencies into Russian Rubles to be able to pay their taxes, which will most certainly support the Russian currency in the near future.
Daily Chart USD/RUB - Source: ActivTrader Trading Platform powered by TradingView from the broker ActivTrades
What are the reasons behind the Russian currency's sharp recovery?
Russia responded to international sanctions by implementing a number of capital flight prevention measures, such as tough capital controls and central bank interest rate hikes among others, which have significantly supported the local currency.
To prevent significant withdrawals from the Russian financial markets and to limit further losses following the initial fall of the Ruble, Russian citizens weren’t allowed to transfer large amounts of money abroad, and banks were prohibited from selling Russian financial assets held by foreigners and non-residents.
Moreover, Russian exporters were forced to convert 80% of their foreign currency holdings. Russian bank accounts with foreign currencies were also subject to restrictions, as the amount available to be withdrawn was limited to $10,000, with the requirement to keep the rest of the balance in Rubles.
The Russian central bank’s actions also supported the financial system, especially by raising interest rates up to 20% in February 2022 (they are now back down to 9.5% according to the Bank of Russia’s latest data), which provided incentives for Russians to keep Rubles in their savings accounts rather than to convert them into foreign currencies.
Demanding that European Union countries, especially “unfriendly countries”, buy natural gas from Russia in Rubles, rather than USD or EUR, was another move Moscow took to preserve the value of its currency. This decision forced some countries to convert their currency into Russia's currency to be able to pay their gas bills.
Let’s not also forget that by the time Western nations actually voted and approved sanctions against Russia’s commodities, several countries had to keep purchasing their commodities from Russia due to their high reliance on Russian products, especially energy supplies.
Because these payments were done in foreign currency, it provided a consistent supply of foreign cash into the country that could either have been used to avoid Russia going bankrupt on foreign markets, or have been used to be able to convert foreign currencies into Ruble to avoid the currency falling further.
What are investors expecting from the Russian Ruble?
While Russia's currency has shown an impressive turnaround, there are still many uncertainties around the future of the Russian economy and how the new global relationships will affect the level of trade with Russia. Will domestic markets be able to keep pushing the Russian Ruble higher? How will pessimistic growth forecasts affect the Ruble’s long term trends?
For active traders, CFD brokers like ActivTrades, might be able to provide a chance to capitalize on higher uncertainty and higher market volatility over the short-term through CFD trading.
Carolane de Palmas graduated with a Masters in Corporate Finance & Financial Markets and got the AMF Certification (Financial Markets Regulator in France). Afterward, she became an independent trader, investing mostly in European and American stocks/indices.
She created her own company to provide market analyses and educational content on a variety of subjects, from general economic topics to specific trading strategies on the FX and crypto-markets to analyses on the hot market of the moment to brokers and specialized websites.