Rouble: Embarking On A Depreciatory Trajectory
With the Russian rouble trading at RUB32.38/US$ at the time of writing, we expect the unit to head towards RUB32.80/US$ by end-2013, meaning the multi-year technical resistance around RUB33.00/US$ will hold off over this time frame. Supportive of this trend will be the resumption of market expectations for quantitative easing tapering, which will dampen demand for emerging market assets across the board. However, stemming further depreciation of the currency by end-2013 will be the recent inclusion of rouble-denominated sovereign debt into Barclay's Global Aggregate Index starting in force from March 2014. This will bolster the unit as investors expect local government bonds to appreciate in price.
However, we expect worsening economic fundamentals to see the unit breach the RUB33.00/US$ level in early 2014 and embark on a sustained depreciatory trajectory in 2014-2015, averaging RUB33.70/US$ in 2014 and RUB34.50/US$ in 2015. The main reasons for rouble weakness are the deteriorating trade balance, tepid demand for Russian financial and real assets, and a likely rate cut in 2014 by the central bank in a bid to shore up the flagging economy. Further momentum behind the downward pressure on the rouble will come from the Central Bank of Russia (CBR)'s ongoing transition from a managed float regime towards free floating currency and inflation targeting by 2015, as well as a more accommodative stance in 2014-2015.
|Breaching Multi-Year Support in Early 2014|
|Russia - Russia - RUB/US$ Exchange Rate|