The dollar is getting stronger. What will happen to the ruble and where to invest?

dollar attacks

Over the past few weeks, the ruble has been systematically strengthening against the dollar – currently the dollar was worth less than 56 rubles. But at the end of May, the prolonged decline of the US currency stopped and began to regain its positions. Over the weekend, the Central Bank fixed the dollar at 66.4 rubles. The euro has the same trend – until Monday, May 30, the European currency will cost just under 70 rubles. (69.44). On the Moscow Stock Exchange, the rates of major foreign currencies strengthened further. The dollar rose by 1.44 rubles. – up to 66.7 euros – up to 1.69, up to 69.69 rubles.

The strengthening of the ruble against the dollar in April-May was affected by various reasons. Among them, experts call a strong imbalance in the exports and imports of the Russian economy, the actual exclusion of non-residents from “unfriendly” countries from foreign exchange trading, the transition to the payment of Russian energy in rubles for EU countries, and others. However, after the Central Bank cut the key interest rate from 14% to 11%, the situation in exchange rates started to change in the opposite direction.

What will the course be at the beginning of June

Alexander Bakhtin, investment strategist at BCS Mir Investments, told socialbites.ca that the dollar’s price has started to rise as currency controls on exporters are relaxed and non-residents are returning to operations with Russian assets.

“Furthermore, deposits opened at high interest rates in late February-early March begin to expire and some of the funds withdrawn from deposits can be directed by the population to foreign exchange and stock holdings after a key interest rate cut. The attractiveness of the deposit has noticeably decreased. According to our forecasts, the ruble may move in the range of 63-73 against the dollar during the summer months,” he said.

Yan Marchinsky, co-founder of the Y2 Finance investment fund, also noted that it is unlikely that the dollar will return to the values ​​​​of the year – 80-90 rubles – at the beginning of June. According to him, Russia has no particular need to buy dollars at the moment, which will not allow the US currency to become too strong against the ruble in the coming weeks.

“We will see the peak moment of the recovery of the ruble against the dollar in the near future. But later, in any case, stability will occur. Now, in general, oil is very expensive, a barrel of Ural trades at $ 85, Brent – at $ 115. Therefore, our budget needs to be well filled. Therefore, I think that in late May – early June, the dollar will most likely rise to the level of 72-74 rubles,” he said.

What exchange rate is best for the federal budget?

For the formation of the Russian federal budget, the optimal exchange rate of the ruble against the dollar is the 72-75 corridor. Therefore, Marchinsky said, it was possible for the Central Bank to artificially lower the dollar rate earlier, and now, on the contrary, raise it to the optimal level for the government to meet its obligations.

Economist Andrey Kolganov, a leading researcher at Moscow State University, agrees with him. According to him, in the coming weeks the ruble will fall to the level of 70-80 per dollar.

“Now the Central Bank is trying to create more favorable conditions for the main export sectors, especially the oil and gas sector. With the low dollar exchange rate, major Russian energy companies are losing noticeably in ruble revenues. Oil and gas revenues are still key sources of budget renewal. Violation of the interests of key exporters is clearly not in the government’s plans,” Kolganov said.

A similar view was expressed by Bakhtin of BCS World of Investments. However, he explained that even in the conditions of a sharp strengthening of the ruble exchange rate, there was nothing disastrous to replenish the federal budget.

“The federal budget for 2022 was prepared at an average rate of 72.1 rubles/dollar. On the other hand, a strong ruble period does not seem critical given the volume of trade surplus in the first months of the year. “In April, Russia’s oil and gas revenues more than doubled against the backdrop of rising world prices, resulting in a 30% year-on-year increase in total revenues.”

Thus, for the four months of 2022, the federal budget revenues reached about 10 trillion rubles, and the execution reached 40% of the annual plan. “This means that by the end of 2022, Russian treasury revenues could exceed the government’s target by more than 15 percent,” he said.

“Against this background, there are no significant risks in terms of state budget parameters. In addition, we expect the dollar to retreat to the 75-76 region by the end of the year, with the recovery of imports and further easing of the Central Bank.”

Should Russians invest in dollars?

In conditions of high world inflation, it is better not to treat currencies as an investment object. To hedge against depreciation, the dollar, euro and ruble are best placed in foreign exchange instruments – foreign stocks, currency mutual funds, ETFs and others. Bakhtin emphasized that the ideal option is to keep at least a third of the savings in foreign currency instruments.

“At the same time, it is better to opt for the dollar, because globally the US currency should strengthen its position this year against other currencies, including the euro, against the background of the Fed’s rate hike cycle. On the contrary, the euro may continue to show weakness due to difficulties in economic growth associated with the negative impact of the conflict in Ukraine and the consequences of the confrontation with Russia.

Kolganov agreed with him. According to him, the European currency is now inferior to the US dollar in terms of reliability. Therefore, the economist also advised the Russians not to “deal with the euro” unless absolutely necessary. The same, in his opinion, applies to the Chinese yuan.

“It is better for the Russians to have a diversified portfolio of currencies, but preferably without the euro. European capital now wants to invest in US assets. This is the favorite tactic of the US and Chinese officials. In addition, global inflation puts more pressure on the euro.

If a person has to make any expenditures in euros, a small savings reserve should be kept in that currency. Otherwise, you will have to buy the euro at a much lower rate,” said Kolganov.

Investor Marchinsky advised the Russians to be careful with the Swiss franc and the Norwegian krone. According to him, these currencies are currently among the most reliable in the world due to the availability of gold reserves.

“It is necessary to diversify the currency portfolio as much as possible, it is better to keep the savings in different currencies. If I were choosing a currency for savings, I would first of all note the Swiss franc and the Norwegian krone, these are backed by gold and are a relatively stable asset. Now the dollar is under serious pressure. The mechanisms for converting American currency have raised many questions over the past decade. Therefore, I will not buy neither dollars nor euros, ”says Marchinsky.