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The rouble has been on a good run since early last week. USD/RUB has fallen from its recent peak of around 76.50 on Tuesday last week (1 December) to around 73.50. Analysts at Credit Suisse remain constructive on the rouble and lower the short-term USD/RUB target to 71.50 (from 73.00 previously) as prevailing cheapness to oil prices leaves the rouble as a good candidate to perform well in a global reflationary environment.

Key quotes

“The recent rally in the rouble has not translated into much compression of the ‘sanctions risk premium’ as oil prices have rallied too. This valuation argument still leaves the rouble as a good candidate to perform well in a ‘global reflationary’ environment which includes rising oil prices and a shift by cross-asset-class investors into EM assets.”

“Aside from the possibility of a sharp drop in oil prices, the alternative possibility of a meaningful build-up of tensions between Russia and the US remains a key risk for USD/RUB downside trades. We think that there is a relatively low risk of new US sanctions emerging in the coming few months as the new Biden administration settles, but we also think there is a higher risk of sanctions at a later stage, due to hawkish Russia-views within the new US administration. These observations are consistent with expecting the rouble to continue to gain against the US dollar in the short run but also to maintain a big part of the risk premium that emerged in the run-up to the US elections.”

“We will be inclined to lower our USD/RUB targets further if we reach our new 71.50 target, especially if oil prices rise between now and then. But a meaningful drop in USD/RUB to much lower levels such as 64.00 – a level which would be more consistent with the rouble’s historical relationship with oil prices – does not seem on the cards under current circumstances.”