Exchange Rate Outlook: Russian Ruble (RUB) Slides, Russia Sanctions Cause Concern

After registering its largest advance for two weeks, the Ruble softened as the week progressed. The Russian currency came under pressure as the European Union pressed for further sanctions to be placed on Russia over the renewed conflict in the east of Ukraine. Comments from Russian Finance Minister Anton Siluanov, regarding the likelihood of crude prices remaining soft for the foreseeable future, also weighed on the Ruble. The currency shed 0.8% of yesterday’s 2.9% advance against the ‘Greenback’. Yesterday’s uptrend was largely due to the US publishing a shockingly bad Durable Goods Orders report.

According to analyst Dmitry Savchenko; ‘There are still no arguments to bet on the Ruble. Oil looks very weak, a decision on new sanctions may be taken as soon as Thursday, the tax period is over, and the market is bracing itself for February and March, which will be difficult in terms of external-debt repayments.’

The Ruble had previously dropped to record low levels against the US Dollar in response to Standard & Poor’s cutting Russia’s investment grade to junk. The downgrade to below investment level was the first for the nation for ten years. At the time S&P asserted that Russia’s central bank; ‘faces increasingly difficult monetary policy decisions while also trying to support sustainable GDP growth. These challenges result from the inflationary effects of exchange rate depreciation and sanctions from the west as well as counter-sanctions imposed by Russia’. It is believed that the two other major ratings agencies, Fitch and Moody's, may follow S&P's lead.

However, the Russian Ruble could recover ground against the US Dollar later today as the Federal Open Market Committee delivers its interest rate decision. The central bank may chose to adapt its interest rate rhetoric off the back of recent below-forecast domestic ecostats, falling crude oil prices and lower global inflation. If the Fed does imply that rates will remain on hold beyond the first half of 2015, the US Dollar could fall across the board. In other currency news, the Australian Dollar gained on several of its most traded peers after Australia’s core consumer price index increased unexpectedly. The result lessened the odds of the Reserve Bank of Australia cutting interest rates in the near future. The Pound, meanwhile, recovered most of the declines recorded on Tuesday following the publication of disappointing UK growth data.