The USD/RUB exchange rate moved sideways on Thursday as traders waited for the upcoming meeting between Donald Trump and Vladimir Putin of Russia. It was trading at 79.70 on Thursday, inside a range where it has been in the past few weeks.
Trump and Vladimir Putin meeting
The main catalyst for the USD/RUB pair this week is the upcoming meeting between Trump and Putin in Alaska. Its goal is to negotiate a peace plan that will end the ongoing war between Russia and Ukraine.
The stakes are high as the two sides have some well-defined red lines. Russia has insisted that Ukraine must give it the areas it has seized during the war, including Crimea. It also wants some other eastern parts that it has failed to take militarily.
On top of that, Russia demands that Ukraine must demilitarize and stop building its military and that it must not become a NATO member.
Ukraine, on the other hand, has ruled out giving away its land to Russia. It also wants security guarantees, arguing that ending the war now will give Russia room to regroup, rebuild its military, and launch another attack like it did after seizing Crimea.
Trump wants the war to end, while still having some wins as he has positioned himself as a master negotiator.
Implication for the Russian ruble
The upcoming meeting will have implications for the Russian ruble. Indeed, the currency has surged by 30% since Trump’s election because of the hope of the end of the war.
A deal between the two sides will lead to more USD/RUB dip as it will mean that the US will end the sanctions it has placed on Russia.
On the other hand, Trump has promised to escalate the economic pressure on Russia if there is no deal. Since Russia is highly sanctioned, his strategy will be to apply secondary tariffs and sanctions.
In this, the US will add tariffs as high as 500% on countries doing business with Russia. He has already started doing that by adding a 50% tariff on India, a country that buys vast amounts of Russian oil, refines it, and then sells it abroad.
The challenge for Trump, however, is that Russia also does a lot of trade with China, a country that is hard to sanction or tariff. China has demonstrated that it can match US tariffs and use its superiority in the rare earth metals to its advantage.
The other top catalyst for the USD/RUB has been the monetary policy approach of the two central banks. In Russia, the central bank has started cutting interest rates to support the economy. It slashed rates by 200 basis points in the last meeting.
The Fed, on the other hand, is between a rock and a hard place as it considers cutting in its September meeting. Inflation is moving in the wrong direction as the economic slowdown continues.
USD/RUB technical analysis
USDRUB chart | Source: TradingView
The daily chart shows that the USD/RUB exchange rate has remained in a tight range in the past few weeks. This explains why the Average True Range (ATR) has fallen to its lowest level in weeks. The spread between the three lines has narrowed.
It has also formed an inverse head-and-shoulders pattern, meaning that a bullish breakout to 85 is possible.
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