Russia’s Minister of Economic Development, Alexey Ulyukayev, said two weeks ago that the ruble would be less volatile in January. On Monday, the first active trading day of the year following the long New Year’s holiday in the U.S., the Russian currency weakened back into the 60s.
The ruble has lost another 10 basis points against the dollar since Ulyukayev said his country’s currency would soon stabilize, following a record-breaking sell-off last month that took it over 70 to 1 in intraday trade.
The ruble settled at 61.60 on the heels of oil prices falling below $50 a barrel during Monday’s futures trading. Russia’s economy is heavily linked to global oil markets as it is one of the world’s largest energy exporters.
During the last few months, oil prices have declined sharply from above $110 per barrel in early 2014 to the current $55 price, amid market oversupply. The Russian state media has taken to blaming U.S. shale oil development for the reduction in price. However, lackluster demand from China and Europe, two of the world’s most important energy markets, and Saudi Arabia’s refusal to cut output have also contributed to a nearly 50% drop in oil prices.
Russia’s currency faces dual headwinds of geopolitics and oil market fundamentals.
Last month, Russian companies scrambled to find foreign currency in the local market in order to pay short term debt to Western lenders. Russia has been banned from obtaining long term financing from U.S. and E.U. banks due to sanctions stemming from the country’s involvement in the Ukraine crisis. Russia annexed Crimea, a former autonomous region of Ukraine, on March 17, 2014.
According to EPFR Global, a fund tracking firm in Cambridge, Mass., hedge funds and value investors have been putting money to work in Russian equities. It was one of the most crowded markets, as measured by portfolio inflows, in the last five trading days, EPFR said today.
original source: http://www.forbes.com/sites/kenrapoza/2015/01/05/russias-govt-wrong-again-on-ruble/