Why the Russian Ruble Is One of the Best Performing Currencies of 2016
By World First | October 3, 2016 — 10:39 AM EDT
The end of 2014 saw a global supply glut that sent the price of oil into a freefall that continued through much of 2015, dragging many oil-producing/commodity-driven economies with it. As one of the world’s largest crude oil producers, Russia was particularly sensitive to the drop. Oil revenue accounts for around 40% of total revenue, so as oil became cheaper, revenue dried up, plunging the economy into recession. The Russian ruble collapsed.
Desperate to slow the downturn, the Central Bank of Russia moved interest rates from 10.5 to 17%, but the ruble only declined further. Over the course of 2015, the ruble lost over 40% in the currency markets and gave up 17% against the U.S. dollar, making it one of 2015’s worst performing currencies.
Then came Ukraine. Russia’s annexation of the Crimea region and the ensuing conflict with Ukraine sent geopolitical risks soaring and sent the Russian economy further into recession. The losses were widespread; GDP, industrial production, and retail sales all took massive hits. As Moscow persisted, the situation escalated and the west levied sanctions, further depressing the beleaguered economy and its currency.
When a tentative peace was reached in September last year, the conflict scaled back alongside the economic outlook and bets against the ruble. A snap-back was natural when oil prices stabilized and geopolitical risk flattened because the news cycle moved its lenses elsewhere. But does that explain how one of 2015’s worst performers is now its best? Partly. As risks cooled, investors quickly re-priced the value of the ruble, buoying the currency. Alongside this, the dollar slowed its freight-train appreciation which provided some breathing room.
The economic indicators point to an improving, albeit shaky, picture. Although GDP growth and retail sales remain in negative territory, they are on an upward trend following the hard hits of 2015 and industrial and manufacturing production have turned from negative to a tepid positive. The ruble should continue to see support under current conditions, and could easily close the year off with a gold medal for performance against the U.S. dollar.
Natalie Ciavarella is a corporate dealer at World First USA, Inc.
Read more: Why the Russian Ruble Is One of the Best Performing Currencies of 2016 | Investopedia
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