Russian Ruble plunges beyond 100.00 against US Dollar amid multiple headwinds

• Russian Ruble corrects heavily against the US Dollar due to a shrinking current account surplus.
• Central Bank of Russia uplifts interest rates after a year by 1% to 8.5% and prohibits foreign currency purchases to strengthen Russian Ruble.
• The US Dollar will dance to the tune of July’s Retail Sales data.

Russian Ruble prints a fresh 16-month low against the US Dollar due to weak economic outlooks. The USD/RUB pair climbed above the psychological resistance of 100.00 on Monday, extending YTD losses by 38%. The asset remains under pressure as the Russian economy is facing multiple headlines such as sanctions from developed economies, being in a war with Ukraine, and reducing oil exports to Asian nations.

The Russian economy is at war with Ukraine after the latter’s inclusion in NATO, which dampens its economic prospects. The United States economy prohibited transactions in US Dollars for Russia and denied buying oil too. Also, the move was supported by European economies in spite of their higher dependency.

Russian administration is busy at war with Ukraine, which has increased their imports of military equipment and simultaneously imbalanced their capital flows. It is being noted that Russia’s current account surplus shrank by 85% in the first half of CY2023.

Central Bank of the Russian Federation maintained a loose monetary policy for almost a year to elevate economic growth that keep Russian Ruble in a bearish trajectory but now lifted rates by a full 1% to 8.5% in July due to declining capital inflows. The central bank also decided to bring a pause on foreign currency purchases with the agenda of reducing FX volatility.

“It is in the interests of the Russian economy to have a strong Ruble" and that loose monetary policy was the main reason for a plunging currency, says Russian President Vladimir Putin's economic advisor Maxim Oreshkin.

Meanwhile, the US Dollar Index (DXY) finds pressure around 103.00 but remains well-supported above 102.80 amid a cautious market mood and a modest recovery in inflationary pressures in the United States. The USD Index will dance to the tune of July’s Retail Sales data. According to the estimates, the economic data is expected to expand at a higher pace of 0.4% vs. June’s print of 0.2% expansion.