Ruble goes trendy The ruble continues to appreciate and is now at a one-month high against the dollar. Of course there is room for further upside due to the ongoing Russian economic recovery. 62 rubles for one dollar represents a decent target in the short-term. This current strengthening is due to the fact that investors are looking for yields and while many western rates are negative or close to negative, the ruble is definitely a very good opportunity and looks still undervalued.
Oil prices but not only The current rally in oil prices is driving investors towards Russia as its economy relies significantly on the black commodity.
Last Wednesday, July retail sales have been released well above expectations at 4.2% m/m vs 2.9% m/m. On an annualized basis retail sales growth remains nonetheless deeply negative below -5% y/y because of last year’s strong downturn and the collapse of oil. Unemployment data also improved and has also lowered to 5.3%.
Credibility is more and more on the Russian side Russia is also attempting to back its currency with Gold. The Central Bank of Russia is approaching toward its objective of having $500 billion in gold and forex reserve. As a result the ruble is gaining credibility. And with rates at 10.5%. Credibility is even more attractive. It seems that the Russian economy is recovering well. The Central Bank of Russia should now attempt to limit upside pressures on its currency and to increase revenues from exports. We expect a cut of the key rate towards 10% at the September 16th meeting. A deeper rate cut may also be anticipated.