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Strategists at Credit Suisse argue that the sizable geopolitical risk-premium that is already incorporated in the USD/RUB exchange rate and a slightly-improving FX-flow outlook will prevent the pair from breaching 80 in a sustainable way. They stick to a short-term USD/RUB target range of 76-80.

Key quotes

“The risk premium that has been built into the rouble since early July has become large enough to capture the geopolitical complications and specifically the risk that Russia will be hit by fresh sanctions. One measure of this risk premium is the discount of the rouble relative to the USD/RUB level that would be expected if only oil prices determined the exchange rate and if the historical relationship between the USD/RUB and oil prices accurately predicted the exchange rate level. This measure now sits around the middle of the range that it held back in 2018 – when the US delivered outright sanctions against Russia and investors were pricing in a worsening sanctions outlook.”  

“We stick to the 76-80 range for USD/RUB. The mitigating factors suggest that markets have come to a point where they require concrete evidence that ‘sanctions are coming’ before taking USD/RUB substantially higher (i.e. well above 80). By contrast, as long as markets have good reasons to continue to price in the possibility of various sanction outcomes, USD/RUB will, in our view, struggle to fall substantially below 76 before the US elections (unless oil prices rally in a big way).”

“The biggest risk to our USD/RUB range view is that markets price in an ever-rising risk-premium to account for the potential for adverse shifts in US policies towards Russia after the US elections. That could translate initially into a new pre-US-elections range for USD/RUB of 80-85. But this is not our base case. At this point, we are biased in favour of regarding breaches in USD/RUB above 80 as temporary if they come about without being triggered by new material information.”