HomeMediaLatest News70 rubles per dollar: why the Russian currency will sharply strengthen in December and January

70 rubles per dollar: why the Russian currency will sharply strengthen in December and January

05 December 2020

Salikhov Marcel R. President, Principal Director on Economic Studies, Head of the Economic Department

Marcel Salikhov, President of the Institute commented to MBK Media on the situation in the foreign exchange market.

On December 4, on the eve of the weekend, the dollar at the MICEX trading began to cost less than 74 rubles - for the first time since September 2. This happened after the decision of OPEC and other market players to increase the daily hydrocarbons production; it was cut in the spring at the time of the collapse of prices in the fuel market, which then threatened with a global economic collapse. The head of the Economic Department of the Institute for Energy and Finance, Marsel Salikhov, told to MBK Media, why in December the exchange rate of the national currency against the dollar will strengthen by another four rubles and what factors will affect this.

Intrigue in OPEC +

Since April 2020, an agreement to cut oil production has been in effect, which was supposed to help stop the catastrophic drop in oil prices during the pandemic. This document was signed by the OPEC countries and several other oil-producing countries, including Russia. It assumed a gradual return to growth of production. On December 3, the participants agreed to increase it by 500 thousand barrels per day. And although such an increase is usually accompanied by a decrease in prices, this time the price of oil began to rise, on the contrary, and after it the ruble began to strengthen. The fact is that until now there was a small risk that the implementation of the agreement would fail due to disagreements between the countries - this would lead to a sharp increase in production, so investors were wary, Salikhov explains. Initially, OPEC + was going to increase production in December four times more, to two million barrels per day, but the second wave of coronavirus has adjusted plans. “The countries actually accepted the option that Russia was proposing - with a slight increase and revision of the production level on a monthly basis,” the expert says.

It's not just about oil

The ruble exchange rate and oil prices are influenced not only by new agreements, Salikhov said. "The growth is not so much related to the agreement, but rather to the optimism and willingness of investors to contribute in risky assets amid positive news about the coronavirus vaccine," he says.

“Oil is one of the beneficiaries of general optimism, recovery of economic activity, restoration of transport, air traffic and other factors,” the expert believes, “but the ruble took a wait-and-see attitude before the agreement, and now it has strongly strengthened and will continue to strengthen further.”

In the coming months, the lull on the issue of imposing American sanctions due to the change of power in the United States will also positively affect the rate of the Russian currency. “Apparently, there will be no political negativity in the coming months,” Salikhov believes, “now a transition period has begun on the issue of American sanctions. When a new administration [President-elected Joe Biden] begins to work in January, Russia will likely not initially be a top foreign policy priority. Therefore, there are no political risks on the horizon yet. "Also, the strengthening of the ruble will be affected by the traditional pre-New Year growth of quotations on the stock exchanges, he adds.

How much will it cost

Salikhov believes that the Russian national currency in December may strengthen by four rubles in relation to the American one and reach 70 rubles per dollar. Ksenia Lapshina, Analyst at the QBF investment company, agrees with these figures - she predicts that the dollar exchange rate may reach 70 rubles in the first half of 2021, but warns that in the future the situation may be changed dramatically under the influence of various factors. Natalia Orlova, Chief economist at Alfa Bank, warns that "risks of instability" may affect the ruble exchange rate and the economy as a whole in the first quarter of 2021. Nevertheless, she believes that next year the Russian national currency will retain its “objective” and “fundamental” value - from 70 to 75 rubles per dollar.

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