Ruble strengthens to 14-month high against euro while Russian stocks hit record levels

Rising energy prices have pushed Russia's currency to its strongest level against the euro in more than a year, and propelled Russian stocks to record highs.

The Russian currency settled under 84 rubles per euro on Wednesday, its strongest value since July 2020.The ruble traded slightly weaker against US currency at 72.59 rubles per dollar after hitting a three-week high on Tuesday. However, it strengthened against the greenback 0.68% last month, making it the only emerging-market currency to appreciate against the dollar in September, according to Bloomberg data. 

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Russian stocks were also flying high on Wednesday, with the ruble-denominated Moscow Exchange (MOEX) index reaching an all-time high of 4,267.29 points. The dollar-denominated Russia Trading System (RTS) index touched 1,854.97 points, its highest value in over a decade.

Experts say Russian stocks were up due to the rise in the cost of crude oil, which is one of Russia’s main exports. Brent crude, the global oil benchmark, was up 0.4% on Wednesday at $82.87 a barrel, breaching the $80 threshold for the first time since October 2018.

Goldman Sachs recently forecast oil prices could reach $90 per barrel by the end of the year. Analysts at Bank of America went even further, predicting oil could surpass $100 per barrel and lead to a global economic crisis. Experts believe the strengthening of the ruble will continue even if oil becomes significantly cheaper.

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“The fact is that the Russian currency has seriously lagged behind the growth of oil prices, as a result, the ruble value of Brent again rewrote the historical maximum… This is a serious margin of safety for the ruble: even if oil falls by 10-20%, the dollar may remain at current levels, which will lead to the return of the ruble value of Brent to the region of 4,800-5,400 rubles,” Dmitry Babin, stock market analyst at BCS World of Investments, told the Prime news outlet.

“The ruble in the fourth quarter should remain one of the most attractive [emerging economies] currencies, as we expect the continued positive dynamics of commodity prices this year,” said Mikhail Shulgin, head of the global research department at Open Investments. He dubbed the ruble a “black sheep” and stressed that it would continue to benefit from the price hikes in the market as the currency of an energy-exporting country.

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While oil and gas prices are crucial for investors when evaluating emerging market currencies, higher central bank rate expectations also add to the Russian currency’s appeal to investors, according to Dmitry Polevoy, head of investment at Locko-Invest, who spoke to Reuters.

Russia’s Finance Ministry is set to hold a Federal Loan Obligations (OFZ) auction later on Wednesday, which could further strengthen the country’s currency. OFZs are Russia’s treasury bonds, which the country uses to support the budget. These bonds have become popular among foreign investors due to their expected price increase after Russia’s central bank starts cutting rates. However, the central bank said on Wednesday it is still early to say that its rate hiking cycle was over and that it could revise its inflation forecast later this month.

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