VIEWPOINT: Ruble's potential to strengthen further in medium term limited - Promsvyazbank
MOSCOW. July 30 (Interfax) - "In the short term, we expect a consolidation of the dollar/ruble pair in the range of 63 - 63.50 rubles. The upcoming U.S. Federal Reserve meeting will be a focal point of attention this week. We do not fundamentally see the ruble as undervalued at current levels, and proceeding from this, see the potential of further ruble growth as limited. However, if the Fed's rhetoric this Wednesday reflects a high probability of a full-fledged cycle (three or more reductions) of key rate reductions, another positive impulse is possible for the whole group of EM currencies," Promsvyazbank said in a commentary.
"Ruble trading activity continues to remain relatively low thus far. In trading yesterday, the dollar/ruble pair largely consolidated near the 63.50 ruble mark. We will repeat the assertion that the overall global investor attitude towards EM currencies following the Federal Reserve meeting (the results of which will be announced on Wednesday evening) will play a key role in the ruble's short-term prospects in the coming days. We do not fundamentally see the ruble as undervalued at current levels, and based on this, see the potential of further ruble growth as limited. However, if the Fed's rhetoric this Wednesday reflects a high probability of a full-fledged cycle, another positive impulse is possible for the whole group of EM currencies.
As for risks specific to the ruble, we will again note the sanctions situation. Yesterday, Democrat Eliot Engel and Republican Michael McCaul of the U.S. House of Representatives made public an open letter expressing concerns over the fact that 'sanctions were not imposed on Russia over use of chemical agents against individuals residing in the U.K., even though U.S. law requires this.'
We will recall that following the Salisbury incident in August of the previous year, U.S. authorities imposed a first round of sanctions against Russia banning exports of dual-use electronics to the country. In early November of 2018, the U.S. State Department prepared a report in which it declared that 'there are no grounds to believe that Russia has stopped using chemical weapons,' meaning that in accordance with their owns regulations, U.S. authorities are indeed obliged to impose a second round of sanctions (a minimum of three measures must be chosen from a list of six available ones, but the timeframe for imposing these restrictions has not been specified).
Several weeks ago, the U.S. House of Representatives included an amendment in the draft defense budget bill banning U.S. citizens from the Russian sovereign debt market. The bill has yet to be put up for a vote. U.S. legislators will go on recess shortly, meaning that the next several weeks will not generate much sanctions-related news. Nevertheless, in September, the matter of sanctions may again prove relevant. As for the influence of sanctions on the ruble's prospects, we will note that in our estimation, the sanctions premium within the ruble is minimal, meaning that if sanctions risks rise, nervousness within the Russian currency may also increase.
In the short term, we expect a consolidation of the dollar/ruble pair in the 63-63.50 ruble range. The Federal Reserve meeting will remain the focal point," Promsvyazbank chief analyst Mikhail Poddubsky said in the commentary.
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