SPECIAL REPORT

‘Putin’ faith in the Russian Ruble?
Chris Tevere, CMT, Senior Technical Strategist
FOREX.COM

8 January 2013
The ruble has gained in popularity in recent years. It is considered part of the well-respected emerging BRICS
economies and appreciated nearly 10% versus the US dollar in the second half of 2012. This is our preview of
what to expect from the ruble in 2013.

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SPECIAL REPORT
The Ruble: a potted history
The first thing to know is that it has a tumultuous past. The Russian economy fell on hard times following the
breakup of the USSR, which culminated in the 1998 financial crisis. Traders who were short the ruble at the
time likely benefited significantly as the Ruble lost 70% of its value against the US dollar in just six months.
The ruble is extremely sensitive to global growth. Back in 1997 the Asian crisis caused a crash in demand for
Russia’s main exports; energy and metals. The resulting price-shock was enough to destabilise an economy
with declining national productivity and a long-standing large fiscal deficit. Investors lost confidence in Russian
assets and sold en-masse. The Bank of Russia didn’t have the currency reserves to maintain the peg against
the US Dollar and the Russian government devalued the ruble.
Since then Russian asset prices including the ruble have recovered, so has the Russian economy. But with the
global prospects for 2013 not looking much rosier than that of 2012, an external economic shock that could
rock the Russian economy is still possible. Ruble traders need to assess the risks of history repeating itself.
Global growth along with a couple of other factors will most likely impact the direction of the ruble in 2013.
These include: central bank action as well as the economic and political situations. We will now take a closer
look at the potential drivers of the ruble this year.
Russia’s domestic economic situation in 2013:
Russia’s economy is still largely dependent on its energy exports, which make up nearly 10 percent of Gross
Domestic Product (GDP). However, oil flows have helped its budget deficit to remain stable, it is currently 0.4%, which is a much healthier position than some western economies.
Due to its reliance on oil revenues, the Russian economy is particularly sensitive to changes in global growth.
Thus any fears about the US or European economies this year could weigh heavily on the ruble. However, the
downside risks may be limited as Russia’s oil flows have helped it to amass a large pot of money that could be
used to help the economy if the global situation deteriorates. FX and gold reserves have been recovering since
the financial crisis and remain close to their highest levels for four years. Russia’s reserve fund held steady at
$61.4 billion in 2012, which is a hefty war chest. This is important for traders in two ways: 1, it means that the
government and central bank could use these reserves to weaken the ruble if there is another economic crisis
in 2013. 2, in the longer term solid reserves may help the Russian economy to recover in the event of a slump
in growth, which could limit the downside pressure on the ruble if an economic crisis does occur.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss
and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not
subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available
for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your
financial objectives, level of experience and risk appetite.
‘Putin’ faith in the Russian Ruble

2/5

SPECIAL REPORT
Russian GDP has trended lower in 2012, but 2.9% GDP in Q3 2012 is a respectable level of growth. Added to
this the government believes the economy may recover in the middle of 2013, as long as there are no external
shocks. Thus, ruble traders should look for signs that the economy is picking up in Q1.
Potential central bank moves in 2013
Russia was the largest emerging economy to raise interest rates in 2012, in an attempt to keep inflation under
control. However, in December it took steps to ease policy and cut the cost to swap foreign currency into
rubles by 0.25 bps to 6.5%. The Bank called this move neutral for monetary policy, and such a small amount of
easing suggests that the Bank is not about to embark on an aggressive easing policy any time soon.
If the Bank says it is embarking on neutral monetary policy then it suggests that it is more comfortable with
inflation, which seems to have peaked around 6.5%. However, if inflation spikes higher during the first quarter
of this year then we may see rates continue to rise in 2013. Higher rates usually boost a currency, but if rates
are rising because of inflation fears then rate increases may have a limited impact on the ruble.
Russia operates a managed floating exchange rate regime. The Bank of Russia widened the floating
‘operational band' of the permissible values of the Russian ruble against a basket containing the euro and US
dollar from 4 rubles to 6 rubles in 2011. We believe that if the global economy stabilises in 2013 and GDP
starts to strengthen then we may see Russia continue to liberalise its exchange rate policy in the coming
months, however we don’t believe there will be any policy changes in the foreseeable future.
Political situation:
Elections last year saw Vladimir Putin return to the Presidency. Although there were protests about his
candidacy, in the aftermath of the March 2012 elections, they had died down by the end of the year.
Accordingly, we view political risks as being fairly low in Russia, at least for the first half of 2013, however there
is always the potential for social discord. If there is a flare up in political or social tensions this year then we
may see the ruble suffer.
Technical Outlook for the Ruble:
Towards the end of November we saw USD/RUB take out a key level of support around 31.00/2500, which
saw the convergence of the 55 & 200-day sma’s as well as the bottom of the daily Ichimoku Cloud (see exhibit
1). This set the stage for a test of the 100-week sma as well as trendline support, drawn from the 2011 low,
around 30.5000. Interestingly enough, USD/RUB ended up following weekly RSI, which broke below
corresponding trendline support in advance to price, as it took out the noted 30.5000 level as well as the
September 2012 low near 30.3800 at the end of 2012. Should USD/RUB break below the psychological and
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss
and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not
subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available
for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your
financial objectives, level of experience and risk appetite.
‘Putin’ faith in the Russian Ruble

3/5

SPECIAL REPORT
option related 30.0000 level, then a test of 29.8225/60 may be in order (see exhibit 2) – Sees convergence of
61.8% retracement (using 2011 low & 2012 high) and 50% retracement (using 2008 low & 2009 high).
Beyond there, the next support levels we see are:
 29.6000 – Trendline support drawn from the 2008 low
 28.85/8600 – 2012 lows
 27.14/1500 – 2011 lows
Exhibit 1

Chart Source: Forex Charts by eSignal

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss
and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not
subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available
for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your
financial objectives, level of experience and risk appetite.
‘Putin’ faith in the Russian Ruble

4/5

SPECIAL REPORT
Exhibit 2

Chart Source: Forex Charts by eSignal

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss
and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not
subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available
for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your
financial objectives, level of experience and risk appetite.
‘Putin’ faith in the Russian Ruble

5/5