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One-year high: the dollar exchange rate exceeded 81 rubles on the Moscow Exchange

Photo by Steve Harvey on Unsplash

On Thursday, April 6, the Russian currency is becoming cheaper in trading on the Moscow Exchange. In the middle of the day the dollar rose by 1.5% to 81.04 rubles, while the euro and yuan went up by 1.6% -to 88.69 and 11.68 rubles respectively. The reached values were the highest since April 2022.

“The weakening of the ruble is due to several factors. Firstly, the supply of foreign currency on the Russian market has decreased, as the volume of exports in monetary terms has decreased. Second, the demand for currency on the part of importers remains high, as the supply of foreign goods to the country has returned to pre-crisis values,” Oleg Syrovatkin, a leading analyst at Otkritie Investments’ global research department, explained to .

Alexander Razuvaev, a member of the supervisory board of the Guild of Financial Analysts and Risk Managers, expressed a similar point of view. As the interlocutor reminded , back in the summer of 2022 the currency received from exports came to Russia in significant volumes, while business interest in foreign currencies has fallen as imports fell sharply against the background of Western sanctions.

Thus, at that moment there was an oversupply of dollars, euros and yuan in the Russian market, as a result of which these currencies were at a record low against the ruble. Now, in turn, the opposite situation is observed on the exchange, Razuvaev said.

“That is, the demand for foreign currency is growing today, but exporters are in no hurry to sell it without any particular need. Last week, companies in large quantities exchanged dollars, euros and yuan for rubles to pay taxes, which somewhat supported the national currency. However, now the tax period has ended, which had a negative impact on the current dynamics of the ruble,” the analyst added.

In addition, according to experts, back in March the positive impact on the Russian currency had budget rule. Under this initiative, the Ministry of Finance sells yuan from the National Wealth Fund (NWF) to cover the cost of the treasury. Due to the actions of the Ministry of Finance, the supply of foreign currencies in the market additionally increased, which supported the ruble.

However, the day before the agency announced plans to reduce the volume of foreign currency sales from the National Welfare Fund by half in the next month. The news also played against the ruble, according to Mikhail Seltzer, stock market expert at BCS World Investment.

“The effect of the budget rule will weaken, which acts as a negative factor for the ruble. However, it is worth noting that the reduction of yuan sales from the FNB speaks about the normalization of the situation with our budget revenues,” the analyst stressed.

In addition, the ruble may have reacted to the news that the British company Shell plans to exchange and withdraw from Russia more than $1 billion from the sale of its stake in the Sakhalin-2 project, writes Bloomebrg. Meanwhile, according to Mikhail Seltzer, immediately after the completion of the deal itself, the currency rates on the Moscow Exchange may go down.

“Against the background of the lower trading turnover, the departure of unfriendly non-residents from the market creates additional pressure on the fx rate. Therefore, the strengthening of the ruble is possible, but as soon as the demand for the currency is satisfied. In general, general market factors are already playing for the recovery of the national currency,” added Seltzer.

According to the experts interviewed by , in the near future the ruble may be significantly helped by the recovery of world oil prices. Since the beginning of the week, the price of benchmark Brent on the ICE exchange in London has increased by about 6.5% and is now fluctuating near $85 per barrel. Moreover, in the foreseeable future the quotes may rise up to $100, Alexander Razuvaev said.

Oil prices began to rise steadily after the countries – participants of the OPEC + deal announced a voluntary reduction of production from May to the end of 2023, a total of 1.66 million barrels per day. This measure was taken in addition to the previously approved reduction of hydrocarbon production by 2 million barrels per day.

It is assumed that the expected reduction of oil production by a total of 3.66 million bpd will lead to a decrease in energy supplies to the international market. This, in turn, should become a reason for further rise in oil prices.

“World oil prices will probably continue to rise, which means that the discount on Russian raw materials will gradually decrease as well. As a result, the revenues of our oil producers will have to increase, hence more money will start flowing into the budget. Under these conditions, investors understand that the current weakening of the ruble cannot last forever,” Razuvaev stressed.

As a reminder, back in 2022, after the start of a special military operation in Ukraine, the EU countries, the US and a number of other Western countries began to refuse to import Russian oil one by one. Moreover, since December, the EU and G7 banned their companies from insuring and transporting raw materials from Russia by sea to other regions of the world at a price above $60 per barrel.

Such actions in the West were explained by the desire to put pressure on Russia and deprive it of profits from the sale of hydrocarbons. In response to the restrictions of unfriendly countries, Moscow imposed a ban on the sale of energy resources to anyone who requires compliance with price ceilings when entering into contracts.

“In the current situation, it is even possible to take the risks of reducing production, rather than being guided by the policy of selling relative to the price ceiling. Today it is $60, tomorrow it could be anything, and to get caught up in some decisions made by unfriendly countries is unacceptable for us,” Russian Deputy Prime Minister Alexander Novak noted earlier.

According to the Russian Energy Ministry, so far Moscow has already been able to fully redirect its oil exports to friendly countries. At the same time, in order to attract buyers and fight competitors in new markets, Russian companies are now offering significant discounts on the raw materials they sell.

For example, in March 2023, a barrel of Brent on the international market was trading at an average price of $78.53, while the Russian oil grade Urals was sold even cheaper than the ceiling price in the West – for about $ 47.85 per barrel. This is evidenced by the materials of the World Bank and the RF Ministry of Finance.

However, already in April, against the background of the OPEC+ decision to reduce production and appreciation of Brent, prices for Russian Urals also began to rise and exceeded $ 60 per barrel. This conclusion was made by the experts of the American Institute of International Finance.

“Taking into account all market factors until the end of spring, the Russian currency may still be a little cheaper and the dollar exchange rate can rise to 85 rubles. However, I think this is a temporary process, and then the strengthening of the national currency will start. It is possible that during the whole year the exchange rate could still go down to 65 rubles,” Alexander Razuvaev suggested.

Oleg Syrovatkin has a similar assessment. He predicts that over the next two to three months the dollar could fluctuate between 80 and 85 rubles, but by the end of the year it is likely to come back to 77 rubles. The experts at BCS World Investment also assume that the American currency will return to the range of 76-77 rubles, the European currency – to 83-84 rubles, and the Chinese currency – to 10.9-11 rubles.

“Of course, there is a probability of further rise in the dollar exchange rate in the near future, but it is unlikely to consolidate at these levels for a long time. The current values do not correspond to the current macroeconomic parameters of Russia,” Mikhail Seltzer concluded.

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