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Since June, the RUB has fallen 20% versus the EUR as the boom in renewables, weakness in oil and gas and Russian geopolitics are weighing on the ruble. Economists at Danske Bank forecast the EUR/RUB pair rising towards 96 on a three-month view.

Key quotes

“Many of the largest companies within renewables have more than doubled their share price since March but the global oil and gas sector stands at the March level. This shows a new global investor preference towards the new-energy (tech) stocks. This has been, and is likely to continue to be, a headwind to the RUB.” 

“Oil-market fundamentals remain weak. The recovery in demand has stalled and OPEC+, including Russia, has started increasing output regardless. There is still a substantial inventory overhang, which needs to be worked through the market before high-cost producers, e.g. US shale producers, can start increasing drilling activity again. We look for Brent to range trade around $40-45/bbl until mid-2021, before a recovery back towards $60/bbl to begin.” 

“Headlines on Russia’s foreign policy have fluctuated from offering bounties on US soldiers in Afghanistan to the poisoning of opposition leader Alexei Navalny, Belarus and the proxy-war with Turkey in Armenia/Azerbaijan. Russian yields have risen some 100bp to reflect the implied risk of new sanctions from either the EU or US on the back of this. In contrast, the EU has emphasised policies that support economic recovery. Thus, relative politics amplify the RUB decline versus EU FX.”

“We see EUR/RUB moving higher, towards 96 in three months. Next year, we are cautiously optimistic with a twelve-month view at 81, but such does require fading sanction risk & rising oil prices.”