Forex Opportunities: Is the Ruble Turning to Gold?
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Forex Opportunities: Is the Ruble Turning to Gold?

Russia's currency, the ruble, has had a tough year, but recent developments have put the once-troubled denomination on a path to recovery.

Forex Opportunities: Is the Ruble Turning to Gold?


Russia's currency, the ruble, has had a tough year, but recent developments have put the once-troubled denomination on a path to recovery. If recent announcements by the CBR (Central Bank of Russia) are any indication, the country's leaders believe that even amid a wartime economy, it's possible to deliver solid fiscal results. Why should forex traders be so interested in the CBR's latest meeting? Because if the bank continues to support and strengthen the ruble's long-term viability, it could become a smart play for investors and any individuals who buy and sell FX pairs.

Keep in mind that the bank's efforts could fall flat. The main thing for traders to remember is that swings in either direction, as long as you can predict them with reasonable certainty, can be a huge source of opportunity. Individuals who use a regulated FX broker like AvaTrade for their forex trading can employ tools like automated stops and other protective measures to minimize risk. The following are relevant points to gather from what's happened during the past two months in Russia's exchange rates, inflation, and general economic health.

Russia's Central Bank Saves the Ruble

CBR's meeting in late May was a surprise to many, as the bankers decided to cut the nation's official interests rate from 14 percent to 11 percent. That's a massive reduction in normal times, but these are not normal times for Russia. The war in Ukraine has changed everything, from attracting heavy international sanctions to nearly decimating the value of the ruble in the process. Yet, after leveraging significant income from the sale of oil and natural gas, Russia's leaders have managed to prop up their currency since invading Ukraine in early February.

At that time, as a precautionary measure, the CBR hiked rates to an astronomical 20 percent, from the original 9.5 percent level, to stave off inflation. Later, as inflation waned a little, they dropped rates to 17 percent. A few weeks later, 17 gave way to 14, and finally to 11 percent, which is what the late May meeting was all about. With inflation currently running at 17.5 percent, the bank is optimistic that it will cool down to a modest four percent by 2024.

Opportunities for FX Traders

Whenever any nation's central bank drops the official interest rate by nine full points within eight weeks, forex enthusiasts take notice. That's because, in usual circumstances, even a half percent rise or fall in an important rate is considered a major event. That kind of extreme action, in such a short time, and for an economic power like Russia, was unheard of until now. Because the strategy appears to be working, and the currency keeps strengthening, FX traders should keep a close eye on further developments to make more accurate predictions about whether it will get stronger or finally flatten out and return to pre-war levels.

Ruble Analysis, History, and Outlook

The most common measure of RUB's strength is in its pairing with the US dollar, USD/RUB. From 2008 until around 2014, it hovered in the high 30s, with little day-to-day fluctuation. At that time, FX traders weren't so interested in holding it. Then, until about mid-2017, its value weakened, and it took somewhere between 55 and 75 rubles to buy one dollar. After that, and until early this year, USD/RUB floated between 57 and 72. As soon as Russia invaded Ukraine, that numeric shot to 143, the weakest the Russian currency had ever been in recent decades. However, once the CBR jacked rates to 20 percent and imposed strict capital controls, the situation began to improve. Within about 10 weeks, the USD/RUB value went from 143 to 58, meaning that the ruble had erased all its losses and returned to its former exchange value. The next few months will tell the story of whether the central bankers can hold that level for the long term.

Ways to Trade RUB Pairs

You can trade the ruble, or any international currency, in a couple of ways. Those who prefer to deal with forex markets directly tend to choose brokers who offer FX pairs as traditional trading vehicles. However, for those who don't prefer to own the underlying asset, namely currency pairs, CFDs (contracts for difference) make sense. With CFDs, you simply make a prediction on which direction the value of the asset will go. Russia's national currency has been attracting so much attention because of its gigantic swings since February. Russia's currency plodded along within a narrow range for the entire year before the Ukraine invasion. Since then, however, it weakened significantly for a short period and then regained all and more of what it had lost.

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