Can You Profit from a Falling Ruble?

Oil keeps going down in price and so does the ruble. The low price of oil is not Russia’s fault but other problems are of their own making. Meanwhile can you profit from a falling ruble? To do this you need to understand why the ruble is continually in trouble. The New York Times writes how stock shares and ruble fall as oil prices tumble.

The ruble dropped sharply at the opening of trading to more than 76 to the dollar, from 74.75, before recovering to close at 75.8.

Oil and other commodities like natural gas and steel, which make up the bulk of Russia’s exports, have fallen sharply on fears of a slowdown in the Chinese economy. A barrel of the benchmark Brent crude was trading at less than $32, down more than 4 percent for the day.

In an interview published on Monday in the German newspaper Bild, President Vladimir V. Putin of Russia conceded that the plunge in oil prices was hurting his country’s economy, but that it would have a positive side in that it would push Russia to improve its financial policies.

The policies that Russia could change are the annexation of Crimea, support of rebels in Ukraine and adventurism in Syria although these are not the policies that Russia is referring to. The USA and EU imposed sanctions on Russia after their annexation of Crimea and support of Ukrainian separatists.

We expect to see a significant Forex response as sanctions on Russia worsen. Sanctions were increased on Russia’s energy sector as the civil war in Ukraine continues and a Malaysian commercial jet is shot down by a missile as it passed over eastern Ukraine. According to the Telegraph, UK,

The [downed airline] incident comes a day after sweeping US sanctions against Russia’s top oil producer and key energy companies had already shattered the illusory summer calm on Moscow’s markets, raising fears of an investment freeze and a protracted crisis that could last for years.

The rebels in eastern Ukraine are widely believed to be receiving material support and sanctuary from the Russian Federation. The approach of the West has been to begin the process of integrating Ukraine into the EU and visit sanctions on the energy and financial sectors of Russia. The end result could be the loss of financing for many Russian energy projects.

These actions have perhaps hurt Russia as badly as the low price of oil. While Russia cannot unilaterally chance the price of crude oil it could stop its adventurism and get some help in repairing the ruble. However, is Russian President Putin does not seem inclined to do so, how can you profit from a falling ruble?

When Will Oil Recover?

Oil prices are near a twelve year low as oversupply and worries about the Chinese economy drive futures prices down. Deutsche Welle reports the story.

“Investors have one eye on China, and all that’s going on there, and the other eye on oil,” said Erik Davidson, chief investment officer at Wells Fargo Private Bank. “Those two things are keeping investors on pins and needles right now.”

Gain Capital analyst Fawad Razaqzada said he doesn’t see much hope for an immediate rebound in the oil price. “At the moment not many people are expecting to see a significant rebound in oil, so prices are continuing to gush lower to multi-year lows as sentiment goes from bad to worse,” he said.

International sanctions against Iran are due to be lifted once the deal over its nuclear program is implemented. This would allow Tehran to add a further million barrels of oil per day to the existing glut on world markets.

The bottom line is that if the price of oil does not rise, neither will the value of the ruble. For the time being betting against the ruble is probably the best way to earn a profit. As always do your own homework before trading currencies.