Commerzbank’s Tatha Ghose notes that Russia’s central bank has shifted EUR/RUB pricing to derive from USD/RUB, despite thin hard-currency trading. Recent strength in Oil revenues, with Urals averaging about $90 per barrel in April–May, is currently supporting the Ruble. However, Commerzbank expects Oil prices to drift lower by year-end, with a weakening economy likely to pressure the currency again.

Oil support seen as temporary

"Russia’s central bank (CBR) has just changed its EUR/RUB pricing mechanism due to sparse trading volume since the Moscow exchange (MOEX) was sanctioned; going forward, the CB will derive it from USD/RUB."

"This does not seem to make sense fully because, arguably, no practical USD/RUB exchange rate exists either. Probably oil exports can provide a weak anchor for USD/RUB valuation, but overall, we cannot say that hard currency FX markets work in Russia."

"This topic aside, what is of interest, lately, is that oil and gas revenue does show significant improvement recently because the Urals oil price managed to average quite a decent $90/bbl during April-May."

"This is supporting the exchange rate at present. We, however, think that the oil price will drift down from here by the end of the year. "

"Once the oil price bonanza is out of the way, a weakening economy will pressure the currency once again."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)