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Outlook on Russian Ruble March 2011 Outlook on Russian Ruble In a similar fashion to the Canadian dollar and the Norwegian krone, the Russian ruble has been a “The higher rate of standout performer in recent weeks amid rising oil interest has helped prices. Russia is the world’s largest energy producer and as such the rouble has a comparatively close spur the ruble to correlation with oil prices. Brent crude surged to $120 its strongest level a barrel recently, the highest point since August 2008, against the US dollar as the crisis in Libya escalates. since December 2008, rallying 8% on the The inflationary impact of rising oil prices has also benefitted the rouble. The Russian Central Bank last month unexpectedly year to date.” raised interest rates in its most aggressive monetary policy tightening since the economic crisis began. Surging inflation has been fuelled not only through oil prices but also rising food costs and a growing money supply. The higher rate of interest has helped spur the ruble to its strongest level against the US dollar since December 2008, rallying 8% on the year to date. Looking forward US DOLLAR VS RUSSIAN RUBLE Looking ahead the ruble does have further room to appreciate. CURRENT 1MTH 3MTH In the short term, the Russian currency is well positioned to USD RUB 28.28 26.80 29.00 outperform based on the expectation that oil will continue to rise. Higher prices promise higher budget revenues and Keep up-to-date with market stronger economic growth. The inflationary risks also suggest trends with Caxton FX’s daily that the Russian central bank will need to take additional and weekly analysis. Click here monetary tightening measures current rate of appreciation is political uncertainty is likely to in order to keep rising prices maintained. undermine the currency in the in check. However, there are longer term. a number of risks that may In addition, Russia saw $13 constitute a pull back for the billion of capital outflows in ruble. January alone, almost a quarter of the vast $38 billion in capital The Russian central bank flight recorded last year. This keeps strict controls over its exodus of funds is, according to currency, allowing it to float the Russian Finance Minister, within a managed range. The due to the upcoming presidential Bank announced recently that election in 2012, which he says it had widened this range, will always lead investors to suggesting a greater tolerance hedge their risks, especially for ruble appreciation. However, “in a country like ours.” intervention in the market Fundamentally, the Russian may not be too far away if the currency is a riskier asset and US dollar vs Russian ruble: past 12 months 31.00 30.00 29.00 28.00 May Jul Sep Nov Jan 2011 About Caxton FX companies sending money overseas, charging no Its online service, FastPay launched last year, Caxton FX is one of Europe’s leading foreign ex- transfer fees. enables payments of up to £20,000 to be easily change specialists, fully authorised and regulated Caxton FX offers three prepaid currency cards, sent overseas 24/7 with no transaction charges. by the Financial Services Authority. the euro, the dollar and the Global Traveller Over 96% of our customers recommend it. Founded in 2002 and an innovator in its sector, (Sterling), which is suitable for use worldwide The company also offers guidance on timing and Caxton FX provides exceptional service and com- and was the first provider to remove all overseas hedging strategies and is a leading commentator petitive exchange rates for private individuals and ATM fees. in the media. March 2011 Outlook on Chinese yuan Broad market consensus is that the Chinese currency “Although many is significantly undervalued and has been for some time in order to maintain a competitive advantage countries, particularly in the export market. The renminbi, or yuan as its the US, would like to known, is artificially pegged to the US dollar with the see China increase People’s Bank of China keeping very close control over the rate at which it its strength. However, since June 2010 the firm peg allows its currency to was removed allowing the currency to trade within a appreciate, we do not very tight, preset range that is regularly updated by see the yuan gaining the People’s Bank. more than 5% this Appreciation to curb inflation year.” Since June, the yuan has been allowed to appreciate by nearly 4% against the dollar and further appreciation is expected through the year as China moves to curb rising inflationary pressures. With food and energy prices on the rise, China’s first priority is to control inflation, particularly in light of the widespread unrest spreading through North Africa and the Middle-East, which is fuelling oil prices. The official target rate US DOLLAR VS CHINESE YUAN for inflation in China is 4%, but the headline level reached CURRENT 1MTH 3MTH a 28-month high in November at 5.1% sparking a string of USD CNY 6.57 6.50 6.41 measures to bring the rate back down. China has already lifted its interest rate a number of times Keep up-to-date with market over the past six months and has also lifted the reserve trends with Caxton FX’s daily requirement for the nation’s banks in order to restrict lending. and weekly analysis. Click here These measures, coupled with digit annual growth. Amid this a steadily appreciating currency outlook, the Central Bank is have already helped to bring expected to continue policy inflation back to 4.9%. tightening measures. Although many countries, Looking forward particularly the US, would like Looking ahead, we expect a to see China increase the rate moderate increase in the pace of at which it allows its currency the yuan’s appreciation with the to appreciate, we do not see People’s Bank gradually reducing the yuan gaining more than 5% the central parity rate, which this year, which would bring the currently stands at 6.56 against rate down toward 6.24. China the US dollar (down from 6.83 in remains stubborn on the issue of June 2010). Chinese economic policy and is unlikely to bend to growth looks set to boom in both international pressure for fear of the short and long term and tightening policy too quickly and indeed is likely to push double- constraining economic growth. US dollar vs Chinese yuan: past 12 months 6.800 6.700 6.600 6.500 May Jul Sep Nov Jan 2011 About Caxton FX companies sending money overseas, charging no Its online service, FastPay launched last year, Caxton FX is one of Europe’s leading foreign ex- transfer fees. enables payments of up to £20,000 to be easily change specialists, fully authorised and regulated Caxton FX offers three prepaid currency cards, sent overseas 24/7 with no transaction charges. by the Financial Services Authority. the euro, the dollar and the Global Traveller Over 96% of our customers recommend it. Founded in 2002 and an innovator in its sector, (Sterling), which is suitable for use worldwide The company also offers guidance on timing and Caxton FX provides exceptional service and com- and was the first provider to remove all overseas hedging strategies and is a leading commentator petitive exchange rates for private individuals and ATM fees. in the media..
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