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USDRUB – opinion

Hello everyone!

From today, the Ministry of Finance of the Russian Federation resumes purchases of $ for the first time since March 2020, by the way, if we analyze the history of currency interventions of the Central Bank of the Russian Federation / Ministry of Finance, we can conclude that often the average purchase price falls on annual lows or so, and they stop buying or even start sell at price levels close to the highs of the year.

The main thing I want to draw your attention to is the relationship with the RGBI index (price dynamics of the Russian government bond market). This relationship is the opposite – that is, the higher the RGBI (lower chart) – the lower the USDRUB and vice versa. Since the end of November, there has been such a situation that both OFZ and the dollar against the ruble are declining in price.
In part, the strengthening of the ruble is explained by the presence of the DXY ($ index) at lows since 2018, the rise in oil prices and the general demand for risky assets. But the unidirectional movement of USDRUB and RGBI cannot continue for a long time (we know this from the example of other interconnected assets), soon one of these instruments will turn around, and most likely it will be USDRUB!

Let me explain why government bonds are falling in price for a number of fundamental reasons:

– the obvious end of the rate reduction cycle on the part of the Central Bank of the Russian Federation (the lower the key rate, the higher the price of bonds and vice versa)
– growth of inflationary expectations (from this follows the previous statement, regarding the end of the cycle of% reduction by the Central Bank of the Russian Federation)
– Decrease in the price of US government bonds (if benchmark bonds fall, then naturally other government bonds will follow them)

When the price of OFZs falls, the idea of ​​carrytrade becomes unattractive for Western investors (a strategy of making a profit in the foreign exchange and bond markets due to different interest rates), therefore, closing positions on this strategy will lead to a demand for $, why do they need rubles?))

If you look at the RGBI chart, you will see that the current value is close to the lows since November and September last year, when $ was worth 80 rubles, and the dollar is now about 73 rubles.

What if:

– the dollar index (DXY) will start to grow;
– oil corrected downward;
– “weather” for risky assets will change (growth cannot last forever);
– the new administration and the US president will seriously begin to consider new sanctions

Many risks are not taken into account by the market at the moment in the USDRUB pair, the implementation of even one of the above can seriously affect the exchange rate

Local support for USDRUB 72.5, I do not exclude that at the moment they can break downwards in order to touch 68.5-70 rubles, but rather this is an unlikely scenario, I think this year we will see 80+, and maybe even higher. In my opinion, there is not much time left for a trend change, no more than 1-2 months

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