Connect with us

Markets

Russia Set to Dump US Dollar for FOREX

Published

on

Forex Weekly Outlook October 31-November 4
  • Russia Set to Dump US Dollar for FOREX

Russia is intensifying efforts to wean its economy off the US dollar as Washington considers tough new sanctions that could deny it access to foreign debt markets and cut its banks from the greenback.

President Vladimir Putin has repeatedly slammed the US currency dominance on the world’s stage but the country’s previous efforts to de-dollarise its economy have so far had little success.

But with Russian business circles fearing a new round of US measures over Moscow’s alleged international aggression and Washington’s trade policies becoming ever more unpredictable, authorities have now made concrete steps towards their long-standing goal.

Russia’s finance ministry and the central bank are soon expected to present measures to increase the use of other currencies in international trade to Prime Minister Dmitry Medvedev.

“We will certainly be moving in this direction,” Putin said last month.

“Not because we want to undermine the dollar but because we want to ensure our security, because they are constantly slapping sanctions against us and are simply denying us an opportunity to use the dollar.”

Observers warned that the task Russia faces is hugely ambitious but that an unpredictable US policy, new US sanctions against Iran and Washington’s trade war with China could in fact help Moscow.

“Large-scale de-dollarisation will take time –- estimates range between 1.5 and five years,” Euler Hermes, a France-based credit insurance company, said in a recent report.

Russia’s de-dollarisation efforts “may be easier now in a world of rising US protectionism”, it added.

Euler Hermes said Russia’s transactions with the EU and China — which make up nearly 60 percent of Russia’s foreign trade — could be shifted into euros and the yuan, while transactions with former Soviet nations could be done in rubles.

Putin and Chinese counterpart Xi Jinping have repeatedly said they want to increase the use of the ruble and yuan for cross-border trade.

In October, Russian authorities said they were preparing an agreement on the use of national currencies with China.

According to the ING Bank, Sino-Russian trade in the ruble and yuan has already quadrupled over the past four years, although it still only amounted to around 18 percent.

Deputy Prime Minister Yuri Borisov has said India will pay for Russia’s S-400 surface-to-air missile batteries in rubles.

Russian Central Bank governor Elvira Nabiullina has also said she wanted to encourage banks to shift to the ruble.

Russia, which has been chafing under US sanctions since 2014, has already developed its own system for financial transactions to help protect itself from a potential ban from using international bank messaging system SWIFT.

Dmitry Polevoy, chief economist at sovereign wealth fund Russian Direct Investment Fund, said more active trade and transactions between countries would strengthen the de-dollarisation trend.

“There has already been an organic and natural reduction of dollar payments over the years,” Polevoy told AFP.

Russia’s sovereign wealth fund has been a “pioneer” by setting up two funds with China to settle deals in national currencies, Polevoy added.

“The first transactions are due in 2019. Similar investment vehicles could be created in other countries,” he said.

According to the central bank’s data, the share of dollar payments in exports of goods and services declined to 68 percent from 80 percent between 2013 and 2017.

At the same time, the share of transactions in euros increased to 16 percent from nine percent and those in rubles rose to 14 percent from 10 percent.

The trend is less visible in imports, where the share of payments in dollars declined 36 percent from 41 percent.

Russia will not be able to fully jettison the dollar any time soon because its economy still relies heavily on oil — priced in dollars.

But the country has already reduced its holdings of US government debt by around $80 billion this year.

Euler Hermes said that “other measures could be the delisting of major Russian companies from foreign stock exchanges and increasing gold and euro reserves”.

Oleg Kuzmin, an economist at Renaissance Capital, said there were still a lot of obstacles to using national currencies.

“No one needs — for instance — the Russian ruble in Croatia and the Croatian currency in Russia,” he said.

“But if there’s an easy and efficient mechanism to change directly one currency into another, then this can start working properly,” he said.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Gold

Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin

Published

on

Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.

 

Continue Reading

Crude Oil

Oil Prices Extend Gains to $64.32 Ahead of OPEC+ Meeting

Published

on

oil

Oil Prices Rise to $64.32 Amid Expected Output Extension

Oil prices extended gains during the early hours of Thursday trading session amid the possibility that OPEC+ producers might not increase output at a key meeting scheduled for later in the day and the drop in U.S refining.

Brent crude oil, against which Nigeria oil is priced, gained 0.4 percent or 27 cents to $64.32 per barrel as at 7:32 am Nigerian time on Thursday. While the U.S West Texas Intermediate gained 19 cents or 0.3 percent to $61.47 a barrel.

“Prices hinge on Russia’s and Saudi Arabia’s preference to add more crude oil production,” said Stephen Innes, global market strategist at Axi. “Perhaps more interesting is the lack of U.S. shale response to the higher crude oil prices, which is favourable for higher prices.”

The Organization of the Petroleum Exporting Countries (OPEC) and allies, together known as OPEC+, are looking to extend production cuts into April against expected output increase due to the fragile state of the global oil market.

Oil traders and businesses had been expecting the oil cartel to ease production by around 500,000 barrels per day since January 2021 but because of the coronavirus risk and rising global uncertainties, OPEC+ was forced to role-over production cuts until March. Experts now expect that this could be extended to April given the global situation.

“OPEC+ is currently meeting to discuss its current supply agreement. This raised the spectre of a rollover in supply cuts, which also buoyed the market,” ANZ said in a report.

Meanwhile, U.S crude oil inventories rose by more than a record 21 million barrels last week as refining plunged to a record-low amid Texas weather that knocked out power from homes.

Continue Reading

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Published

on

Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

Continue Reading

Trending