The Russian ruble, now close to a multi-year high against major currencies such as the EUR and the USD, is the strongest trading currency in the world so far this year, despite severe economic sanctions imposed by Western governments since the country invaded Ukraine. Will the Ruble continue to strengthen? Possible
Russia’s currency only bought USD 0.0079 at its lowest level after the invasion of Ukraine and the ensuing international sanctions. However, the currency has experienced an impressive upheaval and has made a spectacular comeback to become today’s best currency of 2022!
Although the USD / RUB Forex pair reached a multi-year high around 54 at the time of writing, some analysts expect the local currency to continue to strengthen and the currency pair to continue to fall as companies in the country will soon have to pay their taxes.
Because many Russian companies depend on exports, they receive income in USD, EUR, or other currencies, which means they have to convert foreign currencies into Russian rubles in order to pay their taxes, which will most likely support the Russian currency in the near future. .
USD / RUB Daily Chart – Source: ActivTrader Trading Platform powered by TradingView from broker ActivTrades
What are the reasons behind the sharp recovery of the Russian currency?
Russia has responded to international sanctions by implementing a number of capital flight prevention measures, such as tight capital controls and a central bank interest rate among others, which have significantly supported the local currency.
To prevent significant withdrawals from the Russian financial markets and to limit further losses after the initial fall of the Ruble, Russian citizens were not allowed to transfer large sums of money abroad, and banks were banned from selling Russian financial assets held by foreigners and not. -inhabitants.
In addition, Russian exporters were forced to convert 80% of their foreign exchange assets. Russian bank accounts with foreign currencies were also subject to restrictions, as the amount available to be withdrawn was limited to $ 10,000, with the requirement to keep the rest of the balance in rubles.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 actions of the Russian central bank also supported the financial system, especially by raising interest rates to 20% in February 2022 (they have now returned to 9.5% according to the Latest data from Russia), which provided incentives for Russians to keep rubles in their savings accounts rather than to convert them into foreign currencies.
Requiring EU countries, especially “enemy countries”, to buy natural gas from Russia in rubles, rather than USD or EUR, was another move by Moscow to preserve the value of its currency. This decision forced some countries to convert their currency into the currency of Russia in order to be able to pay their gas bills.
Let us also not forget that when Western nations actually voted and approved sanctions against Russian goods, several countries had to continue to buy their goods from Russia because of their high dependence on Russian products, especially on energy supplies.
Because these payments were made in foreign currency, it provided a consistent supply of foreign cash into the country that could either have been used to prevent Russia from going bankrupt on foreign markets, or had been used to be able to convert foreign currencies into Ruble to avoid. the currency continues to fall.
What do investors expect from the Russian ruble?
While the Russian currency has shown an impressive turnaround, there are still many uncertainties surrounding the future of the Russian economy and how the new global relations will affect the level of trade with Russia. Will domestic markets continue to push the Russian ruble higher? How will pessimistic growth forecasts affect the Ruble’s long-term trends?
For active traders, CFD brokers like ActivTrades, could give an opportunity to capitalize on higher uncertainty and higher market volatility soon by CFD trading.
Biography of the author:
Carolane de Palmas graduated with a Master’s degree in Corporate Finance and Financial Markets and received the AMF Certificate (Regulator of Financial Markets in France). Later, she became an independent trader, investing mostly in European and American stocks / indices.
She has set up her own company to provide market analysis and educational content on a variety of topics, from general economic topics to specific FX and crypto market trading strategies to current hot market analysis to brokers and specialist websites.