Russian ruble fell due to a continuing contraction
The Russian ruble fell drastically by almost 2% against the US dollar on November 12, 2015. There was a contraction in the GDP (gross domestic product) growth in 3Q15. Lingering commodity prices had a substantial impact on the Russian ruble. A major share of the revenue is received from crude exports. The ruble has also been maintaining a negative bias following the recent downturn in crude prices. This is due to the high correlation between oil prices and the commodity currency. It’s also due to high growth across the labor market in the US. This strengthens the case for an interest rate liftoff by the US Fed in December.
The Central Bank of Russia has been caught between contracting GDP growth and high inflation levels. This allows room for easing rates. The central bank maintained that the conditions were linked to structural and cyclical factors. It’s expected to keep its stance unchanged. It will likely keep the rates constant in the near future. This restrained significant depreciation of the ruble against the US dollar.
To learn more about the relatively lower correlation of the ruble with crude prices, read Ruble’s Depreciation Is Slow Compared to the Fall in Crude Prices.
Third quarter GDP stands at -4.1%
The GDP for the third quarter showed a contraction in the economy. It was plagued with low oil revenue and remarkably high inflation levels. The economy contracted by 4.1% following a fall of 4.6% in the previous quarter. It exceeded the expectations of a 4.4% fall. The recovery is expected to be slow due to western sanctions and sluggish growth in commodity prices. This is following the economic slowdown in China and other emerging nations. The Crude Oil Futures – Dec 15 (CLZ5) ended lower by 2.8% at the end of the day on November 12, 2015.
Impact on the market
ETFs were following a negative trajectory on November 12, 2015. The VanEck Vectors Russia ETF (RSX) provides exposure to companies that are publicly traded and domiciled in Russia. It fell by 2.1%. The iShares MSCI Russia Capped ETF (ERUS) fell by 2.2%.
The negative trend was also evident in Russian ADRs (American depositary receipts). Mobile TeleSystems (MBT) fell by 2.2%. On the other hand, energy-related ADRs like Canadian Natural Resources (CNQ) fell by 2.1%. Baytex Energy (BTE) traded negative by 6.0%.