Page 93 - RusRPTJan21

The ruble strengthened mainly on a notable increase in capital inflow to the Russian market, both into stocks and bonds. Recall that the outflow of capital was the main driver of the ruble weakening in 3Q20. However, stability and volumes of the new inflows will depend on the current state of the global economy (the pandemic) and, as a consequence, on the global market dynamic.
Thus, the ruble’s future trend will be shaped mainly by external factors. If global markets grow more, while the US dollar weakens (or stays at low levels), by the end of December the ruble may consolidate at Rb73-74/$.
Euro at 2-year highs.​ The rally in the markets pushed the dollar index down to new lows and led to a noticeable strengthening of all currencies. For the first time since April 2018, the euro broke through the $1.21 mark. At the close on 4 December, the euro traded at $1.2121/EUR (v $1.1963/EUR on 27 November).
The Russian ruble has moved in line with the upbeat mood in November and December, gaining due to a series of risk-on factors​ that include the US presidential election, vaccines being made available to the public and the most recent OPEC+ decision to gradually ease oil production cuts. The ruble has gained 6% in November, with the RUB/$ rate appreciating from more than 79 to 74.5 as of 3 December.
Despite some risk-on factors materializing and risk-off factors fading, there is still some of the geopolitical risk premium left in the ruble, as well as a number of global tailwinds that could further strengthen the RUB/$ rate to 73.2 by YE20 and 71.93 by 1Q21.
The Russian ruble has gained 5.9% over the past month (from a RUB/$ rate of 79 to 74.5) following the 22% increase in oil prices (from $39.7/bbl to $48.7/bbl) and the general risk-on mood, which has helped majors and EMs make gains against the US dollar (BBDXY lost 3% and SOVA Cap EMFX gained 4.3%). The global risk-on mood has been supported by the US presidential election and President-Elect Joe Biden’s economic nominees, as well as by news of several COVID-19 vaccines proving to be effective and being prepared for production. Most recently, the UK approved a vaccine, paving the way for mass vaccinations. Yesterday, 3 December, OPEC+ decided to allow participating countries to add only 500,000 bbl/day starting in January 2021 instead of 2mn bbl/day, as the recovery in global demand remains uneven. The JMMC will monitor market conditions on a monthly basis. The JMMC could increase production every month, but not by more than 500,000 bbl/day per month.
In addition to what has already happened, we think there are still some risk-on factors that could be incorporated in EM FX that could drive the ruble higher.
93 ​RUSSIA Country Report​ January 2021 ​ ​www.intellinews.com