Russian Ruble Risks Volatility Spike Despite Oil Prices Rally

A year after the Russian ruble was making headlines with record bouts of Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term just after being free floated by the Bank of Russia, the currency is taking it on the chin once again. While oil prices have been slumping in the weeks before Christmas, the market for the commodity has taken a breather after Brent and WTI crude leveled in terms of nominal price last week.

In recent days oil prices have been rallying, but this time the Russian ruble is not following up with a rally of its own. Several market analysts continue citing the crude oil price as the key factor behind the move despite the decoupling of the market in recent days, while others are pointing towards lack of Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term.

That said, the key reason behind the move is not what is transpiring on the commodities markets. The central bank of Russia has been actively engaging in verbal intervention in recent days, as the country’s oil producers need a boost to remain competitive on the international markets.

A depreciation of the Russian ruble is reducing the operational costs of Russian oil and gas companies at a time when they desperately need a competitive boost in order to remain in business.

While today foreign exchange brokers are not looking at the USD/RUB and the EUR/RUB pairs as sources of extreme risk, as was the case a year ago when the currency was making 5 to 10 per cent swings on a daily basis, it is worth pointing out that future risks remain.

In a recent comment on the value of the local currency, Bank of Russia officials have stated that its current value is close to equilibrium. At the same time inflation in the country for 2015 is likely to come out at close to 13 per cent.

With central bank officials stating that inflation is likely to move lower in the near future, they have put rate cut speculations on the table. Just as was obvious a year ago, the dramatic rise in interest rates has stifled the real economy and a deep and protracted recession is now warranted.

Analysts from Barclays are anticipating the first rate cuts by the Bank of Russia to begin in the first quarter of 2016. This could bring additional turmoil to the financial markets as the Russian ruble’s attractiveness continues to diminish.

For foreign exchange brokers, this means that they should remain vigilant when looking at ruble crosses as the risks for increased volatility will continue to be present, regardless of oil prices.