Analysts at Credit Suisse now see scope for USD/RUB to fall below its recent lows of 75.76 and potentially to the 73 area in a few weeks. That is on account of a combination of a reduction in the geopolitical risk premium and an improving outlook for oil prices.
Key quotes
“Our political analyst – Alexander Kolyandr – thinks that US sanctions in the context of interference in the US elections are not on the cards at this point.”
“Oil prices look set to be supported by increasing hopes that the Covid-19 vaccine will normalize demand in the medium-term. Meanwhile, OPEC+ now looks determined to delay its previously planned output hike by 3-6 months. We think that the combination of these two drivers creates upside risks to oil prices even after the sizable oil price rally that has unfolded since the time of the US elections.”
“The fact that the rouble has managed to participate in the broad post-elections rally in risk assets, even though the victory for Biden had been widely expected to raise the sanctions risk, suggest that there is an underlying demand for the rouble and perhaps a bigger process of hedges that are being unwound.”
“Our base case scenario now sees USD/RUB falling below its recent multi-week lows of 75.76 which could then pave way for bigger decline to the 73 area. That level would be consistent with a reduction of about a third in the geopolitical risk premium which has been built in since late June. A much larger reduction in the geopolitical risk premium, let alone a total elimination, does not seem to us likely to be on the cards right now. Put differently, we find it unlikely that USD/RUB will drop to around 70 without a substantial rise in oil prices.”
“The biggest risk is the possibility of developments which are seen to raise US sanctions risk substantially as the Biden administration steps in. At extreme we could imagine a return in USD/RUB to the 80-81 area in case markets price in a high probability of sanctions on systemically important Russian entities or a ban on trading by US-incorporated entities in Russian sovereign debt.”
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