USD/RUB: Potential to break below the 73.00 level – Credit Suisse

Economists at Credit Suisse tweak the USD/RUB short-term target range lower to 72.00-76.00 (from 73.00-77.00). The agreement of EU foreign ministers on a relatively soft set of sanctions to be imposed on Russia paves the way for some catch-up of the rouble to the recent rally in oil prices and a potential break below 73.00. But investor-concerns about the likelihood that the US will also impose sanctions on Russia and rising US real rates will keep USD/RUB in a range for now.

Key quotes

“We lower our USD/RUB target range slightly to 72.00-76.00 from 73.00-77.00 after holding the latter target range since 27 January. A break below 73.00 – which has served as a support level in recent weeks – is becoming increasingly likely.”

“Recent developments on the international front have been encouraging from the perspective of holders of long rouble positions. On Monday, the EU-countries’ foreign ministers agreed to push for relatively mild sanctions to be imposed on Russia for Navalny’s imprisonment. We suspect that this development paves way for some catch-up of the rouble to the recent rally in oil prices. The central bank’s shift to a hawkish stance at its meeting on 12 February also helps increase the chance of rouble appreciation.”

“We refrain from lowering the top end of our USD/RUB target range to levels below 76.00 for two reasons: Markets will likely remain concerned about the possibility of future tension between the US and Russia as US officials noted over the weekend that US action against Russia is expected in the coming weeks; and the rise in US real rates has a potential to continue to impact markets’ appetite to EM assets adversely. Ultimately, a break below or above our new target range will require clarity about the US sanctions risks.”