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USD/RUB rose yesterday to multi-week high of 72.69 after trading in a directionless fashion between 70.19 and 72.31 since the beginning of July. Economists at Credit Suisse expect a lingering risk of new US sanctions being imposed on Russia and that risk together with stable oil prices will keep USD/RUB supported above 70.00. Spikes should fade above 74.00. 

Key quotes

“The risk of new sanctions being imposed on Russia by the US is likely to continue to weigh on the rouble. Increasing and lingering sanctions risks would lead investors to err on the side of caution and refrain from adding sizable long positions in the rouble. We think that in this environment Russian exporters tend to act more slowly than otherwise as they convert their dollar revenues to rouble.” 

“Oil prices will be range-trading in the short-run. The recovery in demand for oil globally is being met by a substantial increase in supply. OPEC+ countries are set to increase their cumulative production by 2mn/bbl per day from August while US oil production has been on the rise since it hit a low point in mid-June lows. These developments seem to us consistent with continuation of this month’s oil price stability (in dollar terms), or at least underperformance of oil against other ‘progrowth’ assets such as US equities.”

“These two considerations suggest that USD/RUB will remain supported above 70.00 unless oil prices perform better than we currently expect. Additionally the central bank’s reluctance to signal further policy rate cuts trims the potential for currency-unhedged inflows into local-currency-denominated bonds for now.”

“While risks to the dollar against G10 currencies remain skewed towards the downside we do not see a reason for USD/RUB to rise in a major way from its current level of 72-73 unless substantial new US sanctions are introduced. Therefore, we are biased in favour of selling USD/RUB above 74.00, as we think that the US Congress will ultimately refrain from legislating new and destructive sanctions on Russia.”