History shows that speculative factors rarely have a long-term character. Concerns about anti-Russian sanctions amid the poisoning of opposition leader Navalny, Moscow's interference in the internal affairs of Belarus, and the incident with the US military injured by a Russian patrol in Syria forced non-residents to flee the Russian debt market. The increase in local bond yields triggered a USD/RUB rally towards 76. However, attractive rates increase interest of both foreign and domestic investors. Moreover, the ruble may benefit from the external background.
The S&P 500 is still hitting new all-time highs. Moreover, oil prices are gaining in value due to the hurricane Laura that is ranging on the Gulf coast. What could be better for risky assets? Stock indices and currencies of developing countries feel more than confident and, according to Citigroup, have a good chance to continue the rally on the background of positive news about COVID-19 vaccines and further recovery of the world economy.
Stock indices and currencies of emerging countries
Risks of additional Western sanctions hang over the Russian ruble like a sword of Damocles. Washington has condemned the story of a Russian patrol hitting a vehicle belonging to the US army in Syria as a violation of security protocols. France claims that the Russian Federation does not adhere to a transparent approach in the poisoning of opposition leader Alexey Navalny. This situation will be discussed by EU foreign Ministers on August 27 and 28. The fact that Alexander Lukashenko only talks to Vladimir Putin on the phone and ignores calls from other world leaders is seen as Moscow's interference in the internal affairs of Belarus.
Rumors of new sanctions against the Russian Federation contribute to the flight of foreign capital from the local debt market and may lead to an increase in bond yields.
USD/RUB and Russian bond yields
Carry trade is a key factor in the exchange rate of the ruble, along with oil and the health of the economies that are Russia's main trading partners, including China and the European Union. When market player trade on difference this seriously weakens the local currency. Its further dynamics will depend on the development of the situation in Belarus and on the attitude of the West to the incidents in this country, including the poisoning of Navalny and the unpleasant history in Syria. If no new sanctions are imposed or they are not serious enough, the upward movement in USD/RUB will quickly expire.
Jerome Powell's speech at Jackson Hole may encourage bears. The head of the Federal reserve is expected to announce the transition to targeting average inflation, which will signal a long-term hold on the rate of 0-0.25%. As a result, the USD/RUB longs formed on the breakout of the resistance at 74.15 will need to be closed, and the pair's fall below the support at 73.45 and 73.2 will need to be used to form short positions.
USD/RUB, daily chart
