Ruble collapsed sharply in the days after the Russia-Ukraine war broke out with international sanctions dipping the Ruble to record low of 121.5 per dollar.
The U.S. President himself threw mockery on the currency by saying the ruble had been reduced to “rubble”.
However, the Russia’s currency now surged back to pre-war level closing at 79.7 in Moscow on Wednesday. It gives a clear signal wide-range of international sanctions becomes largely ineffective on the Ruble if foreigners keep buying Russian oil and natural gas.
Economist at Bloomberg expected the country to earn nearly $321 billion energy export this year – up more than a third from 2021, even through the country is mostly cut off from the global economy.
“For the politicians, it is a good PR tool by saying that sanctions don’t have any impact. And it will help to limit the inflation impact,” said Guillaume Tresca, a senior emerging-market strategist at Generali Insurance Asset Management, as reported by Bloomberg.
The ruble-dollar rate has been arguable the economic indicator Russian mostly care about in Russia’s post-Soviet history.
The ruble is highly support by the enacted capital control by Russia in response to the sanctions. The capital control includes freezing the assets held by nonresident investors, and telling Russian companies to convert 80% of the foreign currencies they hold into rubles.
However, some market strategist doubt the recovery of the currency since its happening even during the lightest trading volume in decades. “It is not a free-floating currency given all the measures imposed by the authorities,” Tresca said. U.S. Treasury Secretary Janet Yellen said basically the same thing Wednesday when testifying before Congress, warning against drawing deeper messages about sanctions from the ruble’s rebound.
It is also hard to ignore the lifeline oil and gas purchasing countries giving to the currency. Doing so gives Russia a current-account surplus which undermines the attempt to pummel Russia with sanctions.
“A current-account surplus should actually be another source of stability for the ruble,” said Brendan McKenna, a strategist at Wells Fargo Securities LLC.
“If energy prices remain high and major importers of Russian energy and commodities continue to purchase, the current account should stay in surplus.” He says the ruble could hit 78 per dollar, partly because of Putin’s counter-sanctions.
“Don’t buy the peace rallies,” said Paul Domjan, a senior contributing analyst at Tellimer, as reported by Bloomberg.
“Investors should be very cautious about market rallies following news about peace talks. There will be plenty of false dawns as the world valiantly seeks to end this war.”
