The USDRUB rate weakened on Thursday as the investment community found President Putin’s end of year national address offered absolutely nothing new by way of solutions for dragging Russia out of its economic and currency crisis. He covered many topics, from farmers’ pensions to parking tickets in the three-hour session. However, the two key themes were foreign policy and the economy.
He promised that Russia will weather the ruble crisis. However, he added that he feels no responsibility for the currency’s fall against the dollar from 34.386 (on June 18) to 61.290 (December 18).
Putin did appear to rule out extreme measures such as capital controls. However, his address was a generally a long-winded affair hallmarked by hopes of an improvement in oil prices rather than a concrete plan to diversify the economy. Until the summer, Russia derived 70.25% of its hard currency export earnings from the sale of oil and other fuels.
"Our economy will overcome the current situation. How much time will be needed for that? Under the most unfavourable circumstances, I think it will take about two years,”Putin said.
President Putin refused to accept that the government’s domestic policies – and of course the cross-border incursions into the Ukraine – have had any responsibility for the currency collapse. This was his opportunity to play to the domestic audience by verbally attacking the West. He claimed Western nations, led by the US, had simply wanted to undermine the Russian economy and that if there had been no activity in the Crimea, they would have found another issue to complain about.
Speaking of Russia as a bear he went on to say: "Sometimes I wonder, maybe the bear should just sit quietly, munch on berries and honey rather than chasing after piglets, maybe then, they would leave it alone? But no, they wouldn’t, because they will always try to chain it up. And as soon as they chain it up, they will pull out its teeth and claws ... Once they’ve taken out his claws and his teeth, then the bear is no longer necessary. He’ll become a stuffed animal.”
By teeth and claws, Putin said he meant Russia’s nuclear weapons. The West was circling round to destroy Russia, so it could steal its natural resources, in his view.
This week has seen extreme intraday moves, with the USDRUB rate almost touching 80 on Tuesday, December 16 even after the Central Bank of the Russian Federation had moved interest rates from 10.50% to 17.00%.
There was a recovery of sorts on Wednesday. However, even if one allows for the duel impact of playing to the domestic audience and the essence being lost in translation, the president is exhibiting behaviour that is at best economic and geopolitical denial and at worst paranoia.
Russia has a long battle in hand with a diverse range of economic ills that include low oil prices, looming recession and Western sanctions over the Ukraine crisis. These continue to bite as the European Union banned investment in Crimea on Thursday, December 18, as it bought a halt to European help for Russian Black Sea oil and gas exploration and outlawed European cruise ships from calling at Crimean ports.
These measures, which EU governments have agreed on and approved, will take effect on Saturday, December 20 and reinforce the EU policy of not recognizing Moscow's annexation of Ukraine's Crimea region in March.
Source: www.investing.com, Spotlight Ideas
Source: www.investing.com, Spotlight Ideas
The economic difficulties that Russia faces are deep-rooted, and until there is a removal of statist favouritism, monoline business activities (energy sector domination) – oil began sliding again on Thursday – and a realisation that the land grab policy is illegal, I expect the ruble to resume its decline before too long.
Management and risk:
Parameters: All as USDRUB
Entry: Sell RUB buy USD 61.83
Targets: 61.91 … 64.43 … 68.53 … 72.62
Time horizon: Medium term
— Edited by Robert RyanFor more on forex, click here.
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