The pain China feels because of the trade conflict with the US is child’s play compared to the beating given to Russia due to new measures by Trump. There’s a good chance the drop in the exchange rate of the rouble is only temporary, writes Laurens Maartens of the Payment and Exchange Company (NBWM) in this column.
The American Stock Exchange is bouncing every which way after each message Trump places on Twitter and a lot of attention is paid to the trade conflict with China. Meanwhile, another global power is feeling actual pain from the confrontational course taken by the American president. The Russian stock exchange and the rouble dropped considerably this weekend, as a result of new sanctions. The RTS stock index dropped by 13 per cent in a few days.
Harsh measures
Trump announced new sanctions this weekend. As part of these measures, American companies can no longer do business with (the companies) of seven very wealthy Russian businessmen. In some cases, this will have major consequences. Aluminium producer Rusal – owned by oligarch Oleg Deripaska, who is affected by the sanctions – is running the risk of no longer being able to meet certain bank conditions, for instance. The company’s quotation dropped by about half in just a few days. Other major Russian companies are also hit hard by the measures. Trump implemented the sanctions as retaliation for the Russian interference in the American elections, among other things.
Bad memories
On the currency market, the rouble dropped by 11 per cent compared to the euro since the sanctions were announced. This considerable decrease calls to mind 2014, when the Russian currency also dropped sharply. Back then, a decrease in oil prices was the most important cause. Russia is highly dependent on oil exports for balancing the budget. In this regard, there’s no reason to worry this time. Partly due to increasing geopolitical tensions the price of Brent oil rose by nearly 30 per cent, to its highest level in more than three years, in the past 12 months.
Russia vs America
The American sanctions are unpleasant for Russia, but it’s nothing compared to the pain of the sharply decreasing oil prices of 2014. Despite some companies being hit by the sanctions, the Russian economy is doing well on balance. According to Minister of Finance Anton Siluanov, the country is even heading for a budgetary surplus this year. In the short term, the ruble may come under further pressure because of rising geopolitical tensions due to the opposing interests of Russia and the US in Syria. However, this will lead to higher oil prices, which would be positive for Russia. It’s therefore likely the shock of the dropping rouble will be temporary, rather than cause a structural shift in the world of currency.
Laurens Maartens (laurens.maartens@nbwm.nl) is a currency expert with the Dutch Payment and Exchange Company (www.nbwm.nl). He started his career with Swiss bank UBS in 1998. He has been employed by several parties, both nationally and internationally, since then. He provides commentary for current currency developments in newspapers, on websites and on the radio. In addition, he gives lectures and trains entrepreneurs in the field of currency management. He urges participants to choose especially simple and inexpensive currency products. This column reflects his personal opinion. This information is not intended to constitute professional investment advice nor is it meant as a recommendation to make certain investments through the Dutch Payment and Exchange Company plc.