Have you ever considered trading the Ruble? Perhaps you have, but thought the Russian currency too “exotic” for your taste.
Well, would you change your mind if you heard that a big Ruble trade is brewing, one that could involve billions upon billions of Dollars in the currency exchange market? We thought so. In this article we shed light on the factors driving the Ruble and more importantly, the big Ruble trade everyone is talking about.
What Drives the Ruble?
The Russian Ruble has two main drivers: Oil and Gas. Russia, often nicknamed the “petrostate”, is the world’s single biggest energy exporter and clearly the most important player in the Gas market. In fact, Oil and Gas revenues constitute the bulk of the Russian government’s budget and the majority of the Russian economy revolves around the mining, treatment, and exportation of these two resources.
Thus, when Oil and Gas prices surge it benefits Russia and, consequently, the Ruble, which essentially moves in tandem. But when Oil and Gas prices fall it hits Russia to such an extent that the country has difficulty balancing its budget and its growth stops in its tracks.
The pain from the Ukraine
The ongoing crisis in the Ukraine is the other factor currently affecting the Ruble’s value. As you have no doubt heard, over the past several months Russia has been embroiled in a protracted showdown with the Ukraine over the Russian-speaking region in this country. This has led to one-sided actions, i.e. Russia annexing the Crimea Peninsula and pro-Russian separatists undermining Ukraine’s grip on its easternmost regions.
These actions have provoked some NATO members (namely, the US and the EU) to impose tough sanctions on Russia’s economy, practically blocking its banking sector from the West and threatening a Dollar shortage in the country. Whenever the crisis escalates, fears mount that the imposition of more sanctions on Russia’s Oil and Gas exports could undermine the economy. And because Russia depends on these exports, each crisis escalation that brings about more sanctions jeopardizes exports and hits the Russian Ruble hard.
Currency traders love the Ruble
So why do currency traders love the Ruble? With Oil prices plummeting from $110 to $80, sanctions on Russia escalating and the crisis with the Ukraine far from over, volatility in the USD/RUB trade has spiked, creating massive swings that currency traders can take advantage of. How massive? Since the beginning of the crisis, the USD/RUB has surged by a whopping 19%, a move unequalled by the world’s major currency pairs. And the massive volatility means that with each piece of good news, the rebound for the Ruble (and the fall of the USD/RUB) is also massive. For currency traders, these price spasms, while risky, may produce hot trading opportunities.
The Big Ruble Trade
This brings us to our final point: the big Ruble trade. Rumors about this impending event have been making the rounds among major market movers, i.e. the investment banks that stir billions in the currencies market. While the Ruble’s collapse has been steep, data shows that the Russian Central Bank has been actively preventing the Ruble from entirely collapsing by buying up billions of Rubles at a time.
Rumor has it that because of the bank’s actions, Russia’s Dollar reserves have lost approximately $68 billion, falling to dangerously low levels. So low in fact, that the market movers believe the central bank is close to putting a stop to its interventions in the Ruble, releasing the currency into freefall. How much of a freefall? Investment banks eye the 50 Rubles per Dollar mark which, according to current levels, is another 16.7% rise in the pair.
Will this eventually happen or will peace come to the Ukraine and take us all by surprise? Time will tell, but what is sure is that either way, good news or bad news, rumor or fact, the Ruble is heading for a big move. And with big moves come big opportunities. The question is will you be there to grab it?
What are your predictions for the Russian Ruble? Share them with us!