The rise of Brent crude to $51.88 on Thursday further cements the strengthening seen in oil-backed currencies such as the Ruble, and further hounds the US Dollar into the depths of despair. Rabobank is now projecting that the USDRUB pair could hit a low of 60.8833 in 2021.
The latest comments by the Bank of Russia (CBR) Governor suggests a cautious approach towards the issue of interest rates, which are projected to remain at 4.25% when the bank meets tomorrow in its last monetary policy meeting for 2020. The door towards easing was left open in the last meeting, and this could cap the Ruble’s gains in the near-term.
The stockpiling of food caused a jump in food prices, leading to a rise in the CPI to 4.4% in November, which exceeds the 4% target of the CBR. This is regarded as a temporary situation, which could allow the CBR to leave rates unchanged, as a way to offset the pressure to further weaken the Ruble with a rate cut that makes its exports more competitive.
Technical Levels to Watch
The bearish engulfing pattern of 2/3 November following the completion of the breakout move on the bullish flag on the daily chart, initiated the downtrend move which persists. The 72.802 support is what is holding back the USDRUB’s drop, which was accelerated by weakness on the greenback and rising crude oil prices.
A breakdown of 72.802 allows the USDRUB to continue its downtrending motion towards 71.981, with 70.611 (July 2020 lows) lining up as an additional target to the south. If the CBR holds rates, we could see this outlook play out.
If the CBR opts to cut rates, this would be a RUB -ve event and could lead to a transient strengthening of the USDRUB towards 74.520 and possibly 75.487. Transient is the keyword here, as the sentiment on the USD is quite bearish presently, and rising crude oil prices favour the Ruble.
Long term, coronavirus vaccinations are expected to enable containment of the pandemic, allowing for the recovery of demand in risky assets such as crude oil. Continuing stimulus from the Fed and the US Congress are expected to weaken the greenback, and this could allow Rabobank’s projections to come alive in 2021.