Recently, Bloomberg likened the performance of the Russian rouble to a barometer
measuring President Trump’s chances of re-election in November. The rouble fell nearly 2%
following the announcement that the current president has tested positive for the coronavirus.
Since the start of June, the rouble has seen a steady decline from a high of 68.1 on the
dollar to just over 77.8 on Friday. Meanwhile, opinion polls have shown growing support for
the Democratic candidate Joe Biden. Markets are forecasting that a Democratic win in the
upcoming elections could result in an increase in US sanctions on Russia. Donald Trump’s
recent positive COVID-19 test has put further pressure on the rouble amid doubts over his
ability to hold a successful campaign while in quarantine.
The US, however, is not the only nation threatening the Kremlin with further sanctions. On
October 1, the Council of the European Union imposed new sanctions on Russian individuals and companies involved in the construction of the Kerch Strait bridge on the Russian-
annexed Crimean peninsula. The rouble depreciated 0.65% to 77.5 on the dollar in line with the announcement, backtracking on its appreciation in the first half of the day.
Interfax, a Russian news service, has also noted that recent declines in oil prices are
negatively impacting the rouble’s performance. At the start of October, the price of Brent crude fell 4.06% to under $40 a barrel as worries spread concerning the impact of the second wave of the pandemic on economic recovery. An increase in Libya’s oil production has also put downward pressure on oil prices. Dmitrii Golubovskii, an analyst at Kalita-Finans, a Russian financial group, sees Brent crude prices dropping as low as $35 a barrel in the coming weeks.
The rouble’s downward trend over the past several months can also be linked to changes in
Russia’s monetary policy. Over the summer, Russian bonds had been a popular choice for
investors looking for higher yields in emerging markets. However, since June, Russia’s
Central Bank has cut interest rates from 5.5% to 4.25%. The new record low interest rates
have resulted in outflows from Russian markets as bonds’ yields have become less
attractive.
Despite a rocky week, Russia’s Ministry of Finance has been working to stabilise the rouble
against the dollar. Earlier this week, the rouble gained on the dollar by 2% as limits were
placed on the foreign exchange holdings of Gazprom, Rosneft and Alrosa, three of Russia’s
largest gas and oil companies. Analysts from Bank Saint Petersburg have also forecast that
following the recent imposition of sanctions and decline in global oil prices, the Ministry of
Finance will increase spending on FX transactions to 7.4-7.9 billion roubles a day, three
times the daily amount spent in September, in an attempt to keep the rouble’s course
stable.
While the rouble seems to have been reflecting President Trump’s chances in the upcoming
US elections to an extent, it is clear there are other factors contributing to the currency’s ups and downs. However, we should continue to watch the rouble over the next few weeks as November 3 draws closer.
Image thanks to The Telegraph. Accessed 17th October 2020. https://www.telegraph.co.uk/travel/destinations/europe/russia/