Few currencies have experienced such consistent declines as the Russian ruble. As the chart above illustrates, the ruble has depreciated from around 54 to the US dollar to its current level of 76.1485 in barely 5 months. Such rampant depreciation is the net result of multiple factors, namely commodity price weakness, crippling sanctions imposed on Russia by Europe and the US, and a rampant US dollar. That the Russian economy has been unable to enact economic measures capable of strengthening the ruble for any sustained period of time is evident in the rapid decline of the ruble. It should be pointed out however that the strength of the Russian economy is inextricably linked with the prices of commodities in the energy sector. The Russian economy is heavily dependent on the price of crude oil and when oil prices plummet, revenue streams for Russia dry up. Since oil is priced in US dollars, fewer Russian rubles are received for every barrel of oil that is sold when the exchanges are done. Here are some of the most important factors to consider when deciding whether you should place call options or put options on the USD/RUB currency pair:
The Russian ruble forms part of a group of currencies known as emerging market currencies. These are effectively persona non grata at this point in time. With the global economy floundering and investors less than eager to plough precious resources into unstable, volatile emerging market countries, the Russian economy is naturally a victim of capital flight and disinvestment. Add to that massive weakness in China and it makes sense that demand for crude oil and natural gas will be greatly diminished. These are Russia’s chief exports.
The biting sanctions imposed upon Russia by European countries and the US has had a crippling effect on the Russian ruble. Vladimir Putin and all of his fiscal and monetary policies have been unable to stem the rot. This is evident from the sharp declines in the value of the Russian ruble, despite brief periods of bullishness along the way.
For the year-to-date, the USD/RUB currency pair has returned 4.74%. The currency trading range is 48.14 on the low end and 77.01 on the high end. Such wide deviation within a 52-week period smacks of extremely high volatility – another reason why investors are shying away from long-term investments in Russia.
The Russian ruble is hovering at multi-session lows against the greenback, with the critical 80 ceiling now well within range. This is largely due to be collapsing crude oil prices for both WTI and Brent crude which are now testing the $30 per barrel barrier.
Nothing seems able to stop the relentless march north for the US dollar vis-a-vis the Russian ruble. We could be looking at an exchange rate of 77 to 1, perhaps 78 to 1 within the month. Back in December of 2014 the pair hit 80.02 to 1.
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