RUB: More isolated now – Commerzbank

The observed exchange rates of the Ruble against the US Dollar (USD) and Euro (EUR) are entirely artificial and detached from fundamentals since the US sanctioning of the Moscow Exchange, which ended trading in these currencies. We retain our forecast that the underlying value of the Ruble against hard currencies such as the Euro or the USD will decline over the longer term as Russia's current account surplus will narrow down progressively, Commerzbank’s FX analyst Tatha Ghose notes.

Technical USD/RUB fix to keep rising

“Even before the US sanctioning of the Moscow exchange (MOEX) and the EU announcing its 14th sanctions package on Russia, USD/RUB and EUR/RUB exchange rates had mainly been ‘technical fixes’ as Russia’s own central bank (CBR) is blocked from transacting in dollars or euros. Now, after USD can no longer be traded on MOEX either, the USD/RUB exchange rate has become even more ‘theoretical’.”

“The published rates are indirectly deduced from OTC and other market sources by CBR – for example, using the cross rate between rouble and CNY. We view such exchange rate quotes as unreliable, and their day-to-day movements probably fictitious. USD/RUB and EUR/RUB exchange rates are set to clear the market for a narrow group of traded items, mainly energy and commodities, for which some counterparties are still free to transact in hard currencies.”

“In the longer-term, we forecast USD/RUB and EUR/RUB to drift up gradually because we expect Russia’s current-account surplus to narrow down. The current-account is only a counterpart to the (shut) capital-account – when one is shut, the other is likely to progressively shut down also, which means that the technical USD/RUB fix will keep rising.”