dollar attacks
In recent weeks the ruble has shown a steady strengthening against the dollar, trading below 56 rubles per dollar at times. By the end of May, the dollar halted its slide and began to regain ground. Over the weekend, the central bank fixed the dollar at 66.4 rubles. The euro followed a similar pattern, trading just under 70 rubles on May 30, at 69.44. On the Moscow Stock Exchange, major foreign currencies continued to firm, with the dollar rising 1.44 rubles to 66.7, and the euro advancing to about 69.69 rubles.
The ruble’s strength in April and May came from multiple factors. Analysts point to a sizable imbalance between Russia’s exports and imports, the effective exclusion of non-residents from trading with unfriendly countries, and the shift to paying for Russian energy in rubles with EU partners. After the central bank reduced the key rate from 14 percent to 11 percent, the exchange rate trend began to reverse slightly.
What will the course be at the beginning of June
Investment strategist Alexander Bakhtin of BCS Mir Investments noted that the dollar has begun to climb as export controls loosen and non-residents resume activity in Russian assets.
Markets are also influenced by the expiration of high-rate deposits opened in late February and early March. Some funds freed from those deposits could move into foreign exchange and stock holdings once the rate is cut, reducing the attractiveness of deposits. Forecasts place the ruble in the 63 to 73 per dollar range through the summer.
Yan Marchinsky, co-founder of the Y2 Finance investment fund, added that a return to the 80–90 ruble per dollar level in early June is unlikely. Russia does not currently need to buy large amounts of dollars, which should prevent a strong dollar in the coming weeks.
Bakhtin suggested a near-term peak for ruble recovery could come soon, but a stable period should follow. Oil remains expensive with Ural around 85 dollars and Brent near 115 dollars per barrel. With oil and gas revenues still driving the budget, a late May to early June rise to 72–74 rubles per dollar seems plausible, he said.
What exchange rate is best for the federal budget?
For the federal budget, the ideal ruble to dollar rate is viewed as a 72 to 75 ruble range. Marchinsky suggested that the central bank previously pushed the dollar down to support the budget and now might let it rise to a level that benefits government obligations.
Economist Andrey Kolganov of Moscow State University agreed, predicting a ruble fall to 70–80 per dollar in the following weeks.
The central bank has sought to balance favor for main export sectors, especially oil and gas. A weaker dollar means ruble revenues for these companies can suffer, while oil and gas remain key budget sources. Violating exporters’ interests is not in the government plan, Kolganov explained, though Bakhtin noted that even a sharp ruble rise is not disastrous for budget replenishment given robust trade surplus early in the year. He also recalled that the 2022 federal budget was built around an average rate of 72.1 rubles per dollar, and despite a strong ruble, oil and gas revenues rose with higher world prices, lifting overall revenues by about 30 percent year over year. By the end of four months in 2022, budget revenues were around 10 trillion rubles with 40 percent of annual targets met, suggesting possible upside for treasury receipts by year-end 2022.
Against this backdrop, there are no significant risks to budget parameters. A weaker dollar is not ruled out for year-end with a potential retreat to the 75–76 region as imports recover and the central bank continues easing measures.
Should Russians invest in dollars?
With global inflation high, currencies are not ideal as pure investments. A hedge for depreciation can be achieved by placing rubles in foreign exchange instruments such as foreign stocks, currency mutual funds, and ETFs. Bakhtin emphasized keeping at least a third of savings in foreign currency instruments.
He also advised favoring the dollar, as the United States is expected to strengthen against other currencies, including the euro, amid the Federal Reserve rate hike cycle. The euro may weaken due to growth challenges linked to the Ukraine conflict and tensions with Russia. Kolganov shared the view that the euro currently lags behind the dollar in reliability and cautioned Russians against heavy exposure to the euro or yuan unless necessary. Diversification across currencies is wise, but the euro should be avoided if possible due to European capital seeking US assets amid inflation pressures.
For expenditures in euros, a small reserve in that currency can help avoid buying euros at a much higher rate later. Marchinsky also advised caution with the Swiss franc and the Norwegian krone, noting their strength tied to gold reserves. Diversifying across currencies is prudent; if choosing a single safe bet for savings, the Swiss franc and the Norwegian krone stand out for their gold backing and stability. The dollar currently faces pressure, and questions around its conversion mechanisms have persisted for years. As a result, a balanced approach with multiple currencies is recommended, avoiding a heavy tilt toward dollars or euros unless circumstances require it.