The US dollar and the euro weakened slightly on the Moscow Exchange on Tuesday night, and the ruble climbed slightly against the dual currency basket in anticipation of the outcome of the meeting of the Bank of Russia and the US Federal Reserve System later this week.
At 19:00 Moscow time, the US dollar exchange rate was 72.76 rubles, 4.75 kopecks lower than the previous trading day. The euro exchange rate was 86.55 rubles, and the price fell by 33.5 kopecks.The value of the dual currency basket (0.55 US dollars and 0.45 euros) decreased by 17.69 kopecks-to 78.96 rubles “Interfax”.
The focus of investors this week is the two-day Federal Reserve System (FRS) meeting and the Bank of Russia meeting. The results of the FRS meeting will be announced on Wednesday, the Central Bank of the Russian Federation-Friday. Some analysts predict that the Fed will revise its GDP forecast after the United States adopts a new $1.9 trillion stimulus plan. In addition, investors are trying to understand when the Fed will begin to tighten monetary policy, so after the meeting, special attention will be paid to the press conference of the head of the regulator, Jerome Powell (Jerome Powell).
His speech may have an impact on the already turbulent bond market. The U.S. 10-year U.S. Treasury yield on Tuesday was about 1.6%, higher than the 1.61% when the market closed on Monday. On Friday, she refreshed for more than a year at most. The recent rise in government bond yields has led to a rise in the U.S. dollar against most currencies in the world, as well as a rotation of growth stocks, as the company’s future cash flow attractiveness has declined compared with other assets.
US retail sales in February fell 3% from the previous month. Since April 2020, the rate of decline has become the highest level in the last 10 months. On average, experts predict that the decline will be small, only 0.5%.
The decline in industrial production in the United States in February also reached its highest level in 10 months. The Federal Reserve (Fed) said in a report that the country’s industrial production fell 2.2% last month from January. According to data from Trading Economics, the consensus forecast of experts provides a 0.3% increase.
The next meeting of the Board of Directors on the monetary policy of the Central Bank of the Russian Federation will be held on Friday, March 19. Last week, Elvira Nabiullina, Governor of the Central Bank of the Russian Federation, stated that the Bank of Russia did not rule out the possibility of raising interest rates as early as 2021. According to her, the actions of regulators will depend on incoming data.
“We don’t rule out any factors, everything depends on the data. Today, we see a steady recovery in business activities and the final demand in various economic sectors. Moreover, we have noticed that inflationary pressures are increasing,” said the head of the department. The Central Bank answered the question of whether it is possible to transition to a neutral policy this year.
At the last meeting held on February 12, the Bank of Russia kept the key interest rate at 4.25% (which has been at that level since July 27, 2020).
KSP Capital UA analyst Mikhail Bespalov (Mikhail Bespalov) said that the ruble strengthened moderately in Tuesday’s auction, while continuing the highs against the US dollar and the euro from July to August last year. “It seems that basic factors, including relatively high oil prices, are finally beginning to dominate the factors related to the prospect of imposing tougher sanctions, thereby contributing to the appreciation of the Russian currency. Against the background of high inflation in Russia Russia has adopted a neutral monetary policy. In February, the inflation rate reached 5.7%. Judging from the weekly data, it continued to increase in March.
In Tuesday’s trading, the benchmark oil price accelerated its decline. Investors are particularly concerned about discontinuing the AstraZeneca coronavirus vaccine in certain European countries (including Germany, France, Italy and Spain).
At 19:01 London time on Tuesday, the May Brent crude oil futures price on the ICE Futures Exchange on the London Exchange fell 0.9% to 68.26 US dollars per barrel. This time, the April WTI crude oil futures price in NYMEX electronic trading fell 1.22% to $64.59 per barrel.
In addition, Iranian oil has flowed into China in recent weeks, squeezing imports from other countries, and threatening OPEC+ efforts to reduce market supply. China is the world’s largest oil importer and currently purchases about 1 million barrels of oil, condensate and fuel oil from Iran every day.
Iran is a member of OPEC, but has not participated in the OPEC + production reduction agreement. China’s preference for cheap Iranian oil is driving down demand for oil in other OPEC countries such as Angola, as well as Norway and Brazil.
Due to U.S. sanctions, many refiners and traders are wary of buying Iranian oil, which may cause them to be denied access to the U.S. banking system.