“Rubble” Surges To 2-Month Highs Against Dollar As Russia Works To Reduce FX Volatility

Having crashed to a record low of 121.5 per dollar shortly after the Ukraine war began – triggering memories of the battering it took during the 1998 Russian financial crisis – the Ruble was (for a brief period) the most potent symbol of the crushing blow that The West had struck against Russia’s economic fortunes.

Things were so bad that President Biden took to Twitter to mock the currency, saying that it had been reduced to “rubble”…

As a result of our unprecedented sanctions, the ruble was almost immediately reduced to rubble.

The Russian economy is on track to be cut in half.

It was ranked the 11th biggest economy in the world before this invasion — and soon, it will not even rank among the top 20.

— President Biden (@POTUS) March 26, 2022

Two weeks later, things look a little different as the Russian currency has soared higher against the USDollar – now at its strongest against the greenback in two months…

There are numerous reasons for the rebound, including capital controls, but the main drivers appear to be Putin’s “Rubles for Gas” ultimatums and the fact that, as Mike Shedlock noted, the much-lauded sanctions against Russia are in fact “half-assed” and have done little to reduce inbound cashflows for energy and ag products.

Bloomberg reports Putin May Collect $321 Billion Windfall If Oil and Gas Keep Flowing

For all the hardships visited on consumers at home and the financial chokehold put on the government from abroad, Bloomberg Economics expects Russia will earn nearly $321 billion from energy exports this year, an increase of more than a third from 2021. It’s also on track for a record current-account surplus that the Institute of International Finance says may reach as high as $240 billion.

“The single biggest driver of Russia’s current account surplus continues to look solid,” IIF economists led by Robin Brooks said in a report. “With current sanctions in place, substantial inflows of hard currency into Russia look set to continue.”

The calculus may change completely, however, in case of an embargo on energy sales. And even without it, Russia’s oil exports and output are already falling, with the International Energy Agency predicting it may lose nearly a quarter of its crude production this month.

Despite the fact that sanctions don’t work, the US and EU keep trying even in the face of the ‘science’ of macroeconomics…

“A current-account surplus should actually be another source of stability for the ruble,” said Brendan McKenna, a strategist at Wells Fargo Securities LLC.

“If energy prices remain high and major importers of Russian energy and commodities continue to purchase, the current account should stay in surplus.”

Of course, due to the embarrassing nature of this resurgence going against the sanction-crushed-‘rubble’ narrative from Washington, U.S. Treasury Secretary Janet Yellen quickly jumped into rubbish the market’s comeback here, claiming that the market for rubles has become so manipulated by actions of the Russian government and its central bank to limit capital outflows that “you should not infer anything” from the value of the ruble.

“As Russia’s economy and financial sector adapt to a new equilibrium of capital controls, managed prices, and economic autarky, it is not surprising that some of the domestic markets stabilize,” said Elina Ribakova and Benjamin Hilgenstock, economists at the Institute of International Finance.

“Sanctions have become a moving target and will require adjustments over time to remain effective.”

However, not everyone is buying the rebound as as positive sign:

“Don’t buy the peace rallies,” said Paul Domjan, a senior contributing analyst at Tellimer.

“Investors should be very cautious about market rallies following news about peace talks. There will be plenty of false dawns as the world valiantly seeks to end this war.”

However, all the time China, India (and much of Europe) is still buying Putin’s energy and ag products… no matter how loud the threats come from Washington, the Ruble will stave off the “rubble” narrative.

Additionally, Russian FinMin Anton Siluanov noted this morning that Russia will do everything to ensure its creditors receive debt payments, and is working on measures to reduce ruble volatility, make ruble exchange rate more predictable.