By Paul Quintaro
Generally speaking, over the past year, the trend for the Russian ruble has been one of appreciation. At one point, the ruble had appreciated against the U.S. dollar by almost 15%.
Yet, in recent days, this trend has begun to reverse, and the ruble has experienced a sharp sell-off. On Tuesday, at one point in the trading session, the ruble declined against the dollar by over 2%.
Against the Swiss franc, the move has been even more pronounced—depreciating against the franc by roughly 4%.
The ruble may be trading down on a variety of factors.
As Russia is an emerging market economy and member of the BRIC group of nations, Russia’s currency may be in decline due to the recent poor performance of its stock market. Since last Wednesday, the RTSI Index has lost over 20% of its value.
Other BRIC nations, most notably Brazil but also China, have seen declines in their markets as well. This shift in the Russian market may therefore be part of a larger trend, as traders liquidate more speculative assets.
The ruble also has a tendency to trade in a corresponding fashion with the price of crude oil. Russia is a major exporter of oil and natural gas. As the price of crude oil increased in recent months, the Russian ruble appreciated in value, perhaps due to increased demand for its exports.
However, as crude oil experienced a large sell-off in recent days, the ruble may simply be following suit.
Fears of a global economic slowdown may behind the sell-off in crude. Part of that may be due to Standard & Poor’s decision to downgrade the U.S. government’s debt. However, recent developments in the European Union (EU) may also be feeding into global concerns.
That may be double trouble for Russia, as most of the country’s energy exports flow directly to the EU.
Where does the ruble go from here? If the global economy can recover from this recent set-back, crude could rally again, possibly leading the ruble to appreciate. At the same time, if crude continues to fall and the EU comes under more stress, the ruble may only depreciate further.