The Russian ruble is expected to face continuing headwinds, despite the currency leading a post-U.S. election rally by emerging-market currencies.
The ruble jumped on November 5 and was on pace for one of its best weeks in months as it led a basket of emerging-market currencies in a risk-on environment following the U.S. election.
The ruble was trading at 76.9 to the dollar, an improvement from hovering above 80 on November 2, a level near lows last seen at the height of the pandemic scare in March.
Sinking oil prices because of the coronavirus pandemic and a prospective Joe Biden victory in the U.S. election have put pressure on the ruble in recent months, making the Russian currency one of the worst-performing emerging-market currencies alongside with the Turkish lira and Brazilian real.
But investors are shrugging off U.S. election uncertainty to pile into everything from U.S. tech to emerging markets, turning nearly every asset class green.
The risk-on appetite is based on the bet that a likely Biden presidency with a Republican-controlled Senate will make a massive coronavirus stimulus package less likely and force the Federal Reserve to continue to provide liquidity through market and rate interventions.
The ruble sank 7 percent in the three months leading up the U.S. elections, pulled down by looming sanctions over the poisoning of opposition leader Aleksei Navalny and political turmoil following elections in Belarus.
The ruble's troubles had been driven in part by the expectation that Biden would win the election and take a harder stance on Russia and impose sanctions. Russia has also benefited from President Donald Trump's commitment to oil over green energy, as well as his support for an OPEC+ deal to prevent a crude collapse.
"If Biden wins the presidency, the U.S. may reengage differently in the Middle East and [eastern Mediterranean] affairs and put both Russia and Turkey, for different reasons, under much closer scrutiny and possible review for sanctions," strategists at TD Securities wrote in a note.
Liam Peach, an emerging-market analyst at London-based Capital Economics Ltd, said the ruble had been under pressure from multiple fronts, regardless of the U.S. election outcome. In addition to deteriorating relations with the West, U.S. fiscal policy is likely to impact the Russian currency.
"The ruble will struggle to regain much of its ground over the next few years regardless of who the next U.S. president is as there is likely to be a general worsening of relations with the U.S. and the West more generally, which feeds into our view on weak long-term growth prospects," he said.
The threat of sanctions and Russia’s fraying relationship with the West is unlikely to be an environment in which the ruble performs well, he said.
Anders Aslund, an economics expert and senior fellow at the Atlantic Council, said that under a Biden presidency U.S energy policy is likely to be more restrained, but that the impact of a green transformation may take years.
The shorter-term impact on Russia will come from U.S. sanctions policy, which will dampen Russia’s economic growth through even tighter credit and investment conditions, he said.