Patriots of Russia’s economy could happily observe how the exchange rate of the Rubble to the Dollar had been creeping downwards for two weeks before the Bank of Russia announced raising the key rate to 5.5%. Ironically, such news led to a completely opposite, by economic standards, outcome – in 3 days, the Rubble sagged by more that 500 pips, after which continued its journey upwards.
But should we expect that in the following several weeks Russia’s currency will float in the 71.5-72.5 range? My opinion is, not likely.
In favour of my skepticism speak both economic logic and the technical layout of the pair. From the fundamentalist point of view, a further strengthening of the dollar might follow the likely decision by the Fed to increase the base rate during the upcoming meeting today. The decision is much anticipated given the unusually high inflation rate that was announced last week. A higher interest rate might have a strengthening effect on the Dollar thus increasing its ratio to the Rubble.
On the technical side, we can see an almost complete inverse image of head and shoulders, and there is a chance that the second shoulder will soon complete bringing the exchange rate upwards.
Based on this, a more reasonable decision in the weeks to come may be buying the pair and selling it once it reaches the 73.0-73.2 range.