USD/RUB eases below 70.00 on fears of Russian sanctions erasing post-covid recovery

• USD/RUB snaps two-day rebound from the lowest levels since February 2020.
• EBRD expects reversal of the region’s post-coronavirus economic recovery due to Russian sanctions.
• Pullback in Treasury yields, cautious optimism also underpins the latest weakness.
• Risk catalysts may direct intraday moves but US inflation is the key.

USD/RUB drops half a percent as traders fail to extend the previous two-day uptrend heading into Tuesday’s European session. The ruble (RUB) pair dropped to the lowest since February 2020 before bouncing off 64.25 on Friday. The recovery moves, however, recently faded as the quote eases from 70.65 amid fears that the sanctions on Russia will reverse a post-covid economic recovery in the Europe and surrounding area.

European Bank for Reconstruction and Development (EBRD) came out with the latest report by trimming 2022 growth forecasts for its region to 1.1% from 1.7% forecast in March, per Reuters. The EBRD also expects Ukraine's economy to contract 30% in 2022 before growing 25% in 2023. The EBRD report also adds that Russia to erase nearly a decade of growth with a 10% contraction in 2022.

The report cites the bloc’s sanctions on Russian gas as the key catalyst to triggering the reversal of the economic transition from COVID-19.

Elsewhere, a recovery in the market sentiment and a pullback in the US Treasury yields also weighed on the USD/RUB prices. That said, the US 10-year Treasury bond coupons renewed a multi-day high the previous day before retreating from 3.20%, down three basis points to 3.05% by the press time. The pullback in yields could be linked to the mixed comments from the Fed policymakers as Atlanta Fed’s Raphael Bostic promoted a series of 50bps rate lifts but Richmond Fed President Thomas Barkin kept the 75 bps rate hike on the table during their recent speeches.

Additionally favoring market sentiment are comments from China’s Vice Premier Liu He who reiterated the country’s dynamic covid zero policy and offers the much-needed relief to the US stock futures around the yearly low.

Looking forward, USD/RUB traders will pay attention to the geopolitical headlines as Russia remains intact on its Ukraine invasion goals despite Western pressure and sanctions. Also important will be the US inflation data for April, mainly due to the Fed’s monetary policy tightening which previously propelled the USD. Further, speeches from US President Joe Biden and Treasury Secretary Janet Yellen will join the Fedspeak to direct intraday moves as well.

Technical analysis

A downward sloping trend line from late March, around 70.30 by the press time, guards the USD/RUB rebound ahead of the 200-DMA level of 78.70. Meanwhile, the mid-2020 lows near 68.00 can restrict immediate downside before directing bears towards the latest multi-month bottom at 64.25.