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The USD/RUB bears are frightened by the second coronavirus wave in China, a surge in the number of infected people to record high in some US states, and pessimistic speeches provided by Jerome Powell. They have even allowed their opponents to raise the quote above the psychological level of 70. However, their actions look like a game of cat and mouse.
The Russian ruble will keep its current positions as S&P 500 is above 3,000, Brent crude is trading higher than $40 a barrel, there is no shortage of cheap liquidity in financial markets, and the Bank of Russia leaves the door open for the monetary policy easing.
During the previous regulator's meeting, Elvira Nabiullina said that the key interest rate could drop to 4.5%. Experts at Reuters suppose that this may happen as early as June 19th. At the same time, some other specialists interviewed by Bloomberg are less aggressive. They believe that the central bank will cut the key rate by 75 basis points to 4.75%. In April and May, Russia's inflation accelerated. Easing of the Russian monetary policy usually leads to the consolidation of the national currency. This may significantly complicate the return of consumer prices to the 4% target.
Russia's Inflation Rate and the CBR's Key Interest Rate
As a rule, lowering of the benchmark rate is a bearish factor for the national currency. However, the high yield of the Russian debt market attracts foreign investors. During the last three months, marlet participants who choose carry trade earned about 21% by means of the ruble-related assets. At the same time, further easing of the monetary policy may contribute to an increase in bond prices, which will allow traders to sell the previously purchased securities with a decent profit.
According to the comments provided by Jerome Powell, the US Fed is not planning to change its ultra-soft monetary policy. The Fed's Chairman called on Congress to continue to support the economy that is getting back on track. Powell supposes that the country's economy will be able to hit the pre-crisis levels only if people are completely sure that the spread of COVID-19 is under control. S&P 500 will be cushioned by both the Fed and the White House. Donald Trump said that the virus would die, but still it would be perfect to have vaccine against it. The US administration is considering plans to increase infrastructure spending by $1 trillion. This, in turn, may boost both state-issued stocks and all risky assets.
While Donald Trump is confident that the S&P 500 rally will continue, Saudi Arabia claims that the OPEC+ agreement to reduce production and restore global demand will lead to a return of oil prices to normal levels. Most likely, Riyadh expects Brent to rise to $60-65 per barrel.
I suppose that the S&P 500 correction will hardly be deep and demand for the US dollar as a safe-haven asset will be confidently dropping amid stable epidemiological situation and absence of trading wars. Thus, we may follow the previous selling strategy for the dollar/ruble pair with the targets at 261.8% and 161.8% by the patterns AB=CD and "Crab".
Daily chart for USD/RUB
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