Russia’s ruble is poised to rebound from a five-year low, trading patterns suggest, as next month’s Winter Olympics promise to bring in billions of dollars.
The biggest monthly slide since May 2012 has left the currency the most oversold in 1 1/2 years, according to a measure known as Stochastics, which tracks the velocity of an asset’s price movement. The ruble’s level of about 34 per dollar doesn’t take account of the strength typically seen in Russia’s current account in the first quarter, nor the $3 billion the government estimates will pour into the country as a result of hosting the Sochi games, said Maxim Korovin of VTB Group.
“Even if there were no Sochi, the first quarter is always strong from the current-account point of view,” Korovin, a Moscow-based analyst at Russia’s second-biggest bank, said Jan. 22 by e-mail. “But, yes, Sochi can trigger an inflow of foreign currency into the country.”
The Winter Olympics can’t come soon enough for Russia, whose currency is being weakened by a combination of the slowest economic growth since 2009 and inflation at least four times the pace of its biggest trading partners. Bank Rossi, the central bank, said last week it’s relying on the games to boost the nation’s current-account balance, after it fell 55 percent from a year earlier to $4.7 billion in the fourth quarter.
The ruble was caught up today in a rout of developing-nation assets amid concern growth in China is slowing. It weakened 0.9 percent, touching 34.553 to the dollar, the lowest level since March 2009. It has tumbled 4.8 percent this month, making it the fourth-worst performer among 24 emerging-market peers tracked by Bloomberg, after currencies including the Argentine peso and Turkish lira.
The ruble’s Stochastics indicator versus the U.S. currency rose to 97 today, about the highest level since June 2012 and above the threshold that signals it’s overstretched, data compiled by Bloomberg show. Another technical indicator known as the Williams %R, which signals potential turning points in an asset, suggests Russia’s currency has been oversold for the longest period since July.
Others are more cautious on the ruble’s prospects.
Vladimir Osakovskiy, a Moscow-based analyst at Bank of America Corp., said by phone this week that the benefits of the games will be insignificant compared with the size of Russia’s economy. UBS AG strategists said in a client note yesterday that the ruble will continue its “structural” depreciation until the government overhauls corporate governance rules to improve foreign investment.
The UBS analysts predicted the ruble will fall to 36.6 per dollar by year-end, making them more pessimistic than the median forecast of 25 strategists surveyed by Bloomberg, which puts the currency at 33.7 at the end of 2014.
The Feb. 7-23 games are a prestige project for President Vladamir Putin, who’s made restoring Russia’s might his goal since ascending to the presidency on New Year’s Eve 1999. Security has been stepped up across the country since two suicide bombings killed more than 30 people last month in the southern city of Volgograd, less than 700 kilometers (430 miles) from Sochi.
Russia’s economy grew by 1.2 percent in the third quarter of last year, down from 5.1 percent as of December 2011. Annual inflation of 6.5 percent last month exceeds the higher end of the central bank’s target range by a half-percentage point and compares with 1.5 percent in the U.S. and 0.7 percent in the euro region.
The ruble will strengthen to 33.6 per dollar in the “short term,” Anton Zakharov, a money manager at OAO Promsvyazbank, said by phone from Moscow on Jan. 22, without being specific about timing. The currency may first test a level of 34.1499 per dollar, he said.
Russia’s current-account balance has improved in the first quarter of every year since 2001, according to seasonality data compiled by Bloomberg. The January-to-March figure may be particularly high because of the Winter Olympics, which Russia is spending about $45 billion to stage, making them the costliest on record.
The Olympics will provide an “immediate positive effect” for Russia’s economy, Ashot Tsharakyan, an economist at Moody’s Analytics in Prague, wrote in a report this week.