How do oil prices affect USD/RUB?
Russia’s strongman, Vladimir Putin, the current president, took power in 2000 and has remained in power for the past 20 years. Based on an amendment to the Russian constitution, it looks like he may continue as president for another 16 years. However, we leave the political issues aside. Let’s focus on the economy and try to find a correlation between what affects the oil price and the USD price against the RUB, the currency pair called USD/RUB.
Until 2015, when oil prices rose from USD 20 per barrel to as much as USD 140 per barrel, the USD/RUB pair traded stably around 30. The oil price then fell sharply and the price of WT oil fell to current levels of between USD 30 and 40 per barrel. This is usually considered the end of Russia’s “glut” of sky-high oil prices, and thus the rouble fell significantly against the dollar.
At the same time, the USD/RUB pair rose more than 100% to 70. Notably, both the oil price and the USD/RUB are now trading at the same levels as in 2015.
Oil price war
Earlier, we saw an oil price war between Saudi Arabia and Russia which took USD/RUB to an even higher base level. The recent peak in USD/RUB occurred exactly when WTI dropped to 20 dollars (and even below 0 in some markets). Since 2015, there has been an almost perfect inverted curve between oil prices and USD/RUB.
This is why the oil price is one of the main fundamental factors defining the USD/RUB currency pair. The higher the oil price, the better it is for the oil-exporting Russian economy, and thus the stronger the rouble becomes. This makes it easier for forex traders to forecast USD/RUB developments. By following the price of oil, they get a good indication of the development of the rouble.
Fundamental
Strategically, USD/RUB is on an upward trend. The trend is dictated by the superiority of the US economy over the Russian one. The latter simply cannot handle the competition and is doomed to lose, just like many other developing economies with currencies like MXN, BRL and PRY. As we can see on the chart above, even after a bullish rally, uptrends were rarely challenged – rather, they are sometimes tested. For example, the years 2000-2015 can be seen as a period of relative stability for the USD/RUB at or below resistance 30. 2003-2008 showing a slow decline. This ended with the aforementioned surge in oil prices pushing USD/RUB well above 30.
The weekly chart of USD/RUB below shows a volatile picture with an underlying upward trajectory. While the price may continue to fall for a while, it is unlikely to break the larger trend. More likely is that it will test the bottom at 62-63 and will continue up to 69-70.
In any case, there is basically no basis to expect the RUB to gain ground against the US dollar in the long run. At best, it will remain stable at current levels. It should serve as an ideal backdrop for trading that can rely on this guaranteed fundamentality. This is unless oil prices show a significant fall again.
The rouble, a brief history
The Russian rouble (Russian: российский рубль) is the currency used in Russia and in the two breakaway republics of Abkhazia and South Ossetia, whose independence is recognized only by Russia and a limited number of other countries. The currency code is RUB. 1 ruble is divided into 100 kopecks.
The rouble underwent a currency reform in 1998, and at the time of the change, 1000 old roubles (RUR) became one new rouble (RUB). The rouble has always been the name of both the Russian and Soviet currencies. As early as 1710, the country’s tsar, Peter I of Russia, had the subunit kopek introduced.
After the hyperinflation of the war and revolution years, the second rouble was rapidly introduced from January 1 to December 31, 1922, and replaced by another paper rouble from January 1, 1923 to March 6, 1923. Only with the introduction of the fourth rouble on March 7, 1924, which lasted until 1947, did the currency acquire a permanent value, as it was pegged to a specific gold value and coins were minted. After the war, the Soviet state wanted to reduce the money supply, so it withdrew all rouble banknotes and replaced them with the fifth rouble at a rate of one tenth (coins were not affected).
In 1961, the same reduction in the money supply as in 1947 was repeated and the sixth rouble was introduced. The rouble now formally had a gold standard and one rouble was equivalent to 0.987412 grams of gold, but the public had no possibility to exchange banknotes for gold.
The sixth rouble was long non-convertible, but became convertible in the last years of the Soviet era. In 1992, the Soviet rouble (currency code SUR) was replaced by the Russian rouble (currency code RUR). The seventh series was introduced on January 1, 1998 and was given the currency code RUB.
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