The ruble has been on a steady incline since mid-April, supported by rising oil prices and a hawkish Central Bank of Russia, but a geopolitical cloud is forming as President Vladimir Putin prepares to meet with U.S. President Joe Biden on Wednesday.
The currency notched its strongest level against the greenback since July 2020 last week, according to Reuters data. The dollar dipped to below 72 against the Russian currency to an intraday low of 71.5, as the price of oil notched a 26-month high and Russian inflation surged in May, raising interest rate expectations further. The greenback was trading at 71.97 against the ruble early on Tuesday morning. Meanwhile Russian bond yields rose last week even as U.S. yields retreated.
However, the threat of Western sanctions has consistently clouded the outlook. Biden and Putin will meet in Switzerland to discuss strategic nuclear stability and the deteriorating ties between the Kremlin and the West.
The Russian leader has said relations with Washington are at their lowest point in years, while the White House has vowed that Biden will raise Russian ransomware attacks, aggression in Ukraine and the jailing of dissidents.
Russian President Vladimir Putin speaks with NBC News ahead of Summit with President Biden
In a note Friday, Capital Economics highlighted that some of Russia’s risk premium has fallen since mid-April, based on sovereign dollar bond spreads and credit default swap premia, which could reflect a perceived easing of the threat of further sanctions.
“There’s likely to be more room for further gains in the ruble in the near term as oil prices and local bond yields rise further,” said Emerging Markets Economist Liam Peach.
He added that a rolling back of existing sanctions seems “very unlikely” on Wednesday, with the U.S. having imposed fresh sanctions on Moscow in April.
“But a good outcome for Russian assets would be a more cooperative relationship with the U.S. and the reduced risk of tougher sanctions. This could help to spark a further rally in the ruble.”
