August began unfavorably for the ruble

The first week of a traditionally difficult month for the Russian markets turned out to be difficult for the ruble. The dollar exchange rate at exchange trading for the first time since March 2022 exceeded the level of 96 rubles / $, the euro exchange rate rose above 106 rubles / €. The dynamics is due to the shortage of foreign exchange supply against the backdrop of a reduction in exports, as well as seasonally high demand for it. So far, there are few factors that could contribute to a trend reversal. The continued rise in oil prices may not affect the Russian foreign exchange market until autumn.

The dollar exchange rate on the Moscow Exchange on Friday, August 4, for the first time since the end of March 2022, reached 96.28 rubles / $. Despite the fact that at the end of the day the exchange rate stopped at 95.68 rubles/$, compared to the previous close, it added almost 70 kopecks, and grew by almost 4 rubles over the week. The euro exchange rate, which rose above 106 rubles/€ during exchange trading, closed at 105.6 rubles/€. This result is 3.4 rubles. above the close of the previous day and 4.7 rubles. above the close of a week ago. The Chinese currency exchange rate reached 13.3 rubles / CNY, having added more than 4% in a week.

At the same time, Friday’s currency trading was active, but without excitement. The volume of trades in the dollar with delivery “tomorrow” exceeded 113 billion rubles – the maximum since the end of June. The trading volume of the yuan showed an average value since the beginning of the summer – 125 billion rubles. Euro trading volumes were also at the level of the July-August average (RUB 36 billion), but noticeably lower than in June.

Thus, the first days of August confirm the status of this month as one of the most unfavorable for the Russian currency.

According to Mikhail Vasilyev, chief analyst at Sovcombank, according to statistics over the past 16 years (2007–2022), “August was one of the worst months of the year for the ruble, along with January, November and December.” According to him, among the fundamental reasons for the weakening of the ruble can be called “seasonal decline in the balance of the current account of the balance of payments of the Russian Federation, including due to increased demand for foreign currency for foreign holidays.” As PSB chief analyst Denis Popov points out, the decline in the foreign trade surplus (a steady decline in exports with high imports) is the underlying factor in the weakening of the ruble. In addition, the liquidity of the market, reduced due to the absence of some participants, therefore, “the ruble reacts more sharply to surges in demand for currency,” emphasizes Mr. Vasiliev.

Market participants note that the lack of verbal interventions in defense of the ruble by the authorities is also one of the factors behind such dynamics of the ruble. Earlier, representatives of the financial bloc only stated the imbalance of demand and supply of foreign currency in the domestic market. The head of the Central Bank, Elvira Nabiullina, at a press conference following the last meeting of the Board of Directors of the Central Bank on July 21, stated that “our export volumes have decreased”, while “part of the export proceeds has been transferred to rubles.” At the end of July, Finance Minister Anton Siluanov said that “the depreciation of the ruble is primarily due to the trade balance – the inflows and outflows of currency into and out of the country.”

At the same time, the weakening of the ruble continued against the backdrop of rising oil prices. According to Investing.com, Brent oil prices topped $86 a barrel for the first time in April this year. Since the end of June, it has increased in price by 16%. At the same time, the discount of Russian Urals oil decreased to a minimum since March 2022 and amounted to less than $15 per barrel (see “Kommersant” dated July 31). According to the Ministry of Finance, in July the average price of the main grade of Russian oil was $64.4 per barrel. However, according to Mikhail Vasiliev, the current growth in oil is not enough to increase the supply of foreign currency on the Russian market enough to meet the increased demand for it.

In addition, actual export payments affect the exchange rate with a certain time lag.

Mikhail Vasiliev estimates it at an average of one month. Therefore, according to Mr. Popov, after a while we will see a positive impact on the exchange rate, “if the rise in oil prices consolidates and offsets the effect of a decrease in the physical volumes of oil supplies from Russia.”

At the same time, the plans of the Ministry of Finance to switch from selling foreign currency (yuan) within the framework of the budget rule to buying it (see “Kommersant” dated August 4) should not noticeably affect the situation, market participants believe. In particular, as Mr. Vasilyev recalls, in the first half of the year, the Ministry of Finance sold 500 billion rubles worth of yuan as part of the budget rule, but this “did not keep the ruble from weakening”: the dollar rose by 30%, from 70 rubles / $ to 92 rubles ./$. In August, the Bank of Russia also sells yuan from reserves for 2.3 billion rubles. per day in connection with the use of NWF funds. And these sales “will compensate for the purchases of yuan under the budget rule by 1.8 billion rubles,” emphasizes Mikhail Vasilyev.

The experts are not too optimistic about the nearest dynamics of the Russian currency.

According to Denis Popov, the dollar exchange rate may fall to 95 rubles/$ in autumn “as the foreign trade balance stabilizes.” In addition, in the second half of the month, closer to the deadline for tax payments, exporters will be more active in selling foreign currency earnings for settlements with the budget. However, according to Mikhail Vasiliev, the risks for the ruble are “rather shifted towards further moderate weakening.” According to him, by the end of August the dollar exchange rate may reach 99 rubles/$, and the euro exchange rate – 109 rubles/€.

Dmitry Mikhailovich