USD/RUB advances above 95.60 amid Russia's economic challenges, USD demand

• USD/RUB gains momentum above 95.65 amid the economic challenge in Russia, the hawkish stance from the Fed.
• Finance Minister Anton Siluanov forecast the Russian economy to expand by at least 2.5% in 2023.
• Fed is prepared to hike interest rates further if required and the next rate hike would be determined by data.
• US Nonfarm Payrolls and inflation data will be the highlight this week ahead of the September FOMC meeting.

USD/RUB trades in positive territory for the third consecutive day. The pair trades around 95.65, gaining 0.69% on the day. The economic challenge in Russia exerts pressure on the Ruble and lifts the USD/RUB in the early European session on Monday.

Finance Minister Anton Siluanov said on Saturday that the Russian economy is forecast to expand by at least 2.5% in 2023, while inflation is anticipated to hover around 6%, according to Reuters. Russian policymakers predict that inflation will fall back to the target of 4% in 2024. It is expected to decline to 5.0%-6.5% this year. He also said that he would cooperate with the Central Bank to implement all necessary steps to reduce inflation to the desired level.

In addition, Russia has progressively tightened exit requirements ever since Western companies began leaving the country when Russia began a "special military operation" in Ukraine in February 2022. That said, foreign corporations have already lost more than $80 billion from their Russian operations as Moscow demands a 50% discount on all overseas agreements and needs at least a 10% contribution to the Russian budget.

Apart from this, Russia's budget is under difficulty as a consequence of the turmoil in Ukraine, and the central bank raised the interest rates last week to halt the ruble's slide. That said, the Bank of Russia hiked the interest rate by 350 basis points (bps) to 12%. It’s worth noting that Russia has upped its military spending target for 2023 to more than $100 billion, accounting for one-third of all state expenditures, as the escalating costs of the Ukraine conflict place an increasing strain on Moscow's finances.

On the other hand, hawkish comments from the Federal Reserve (Fed) Chairman Jerome Powell boost the Greenback across the board and act as a tailwind for USD/RUB. Jerome Powell stated at the Jackson Hole Economic Symposium on Friday that the central bank is prepared to hike interest rates further if required and the next rate hike would be determined by data. Meanwhile, Cleveland Fed President Loretta Mester said that GDP and labor market data show that the economy is gaining momentum. She emphasized that the current rates are not restrictive enough to reach the inflation target and a lower growth rate would be essential to moderate inflation.

Market participants will monitor the headlines surrounding the Russia-Ukraine war. The US Nonfarm Payrolls and inflation data will be the highlight this week ahead of the September FOMC meeting. The event could offer hints about further monetary policy and give a clear direction for USD/RUB.