Russian stocks and the ruble are in a strong downward spiral as pressures on the economy mount amid the ongoing attacks by Ukraine. The USD/RUB pair soared to 78.6860, its highest level since April 8, while the MOEX Index remains in a correction after falling by 10% from its highest point this year.
Russian ruble and stocks are falling as the Ukraine war intensifies
Investors are dumping Russian assets as the country’s economy comes under substantial pressure from Ukraine. In a recent statement, Ukraine’s Vladimir Zelensky said that the country was starting a 40-day period of sustained attacks against key Russian assets in a bid to push Putin to the negotiating table.
Already, Crimea has entered a State of Emergency, while some key Russian cities are going through a substantial energy crisis. Ukraine has also attacked important refineries, affecting the amount of oil the country is producing. As a result, Putin has set up a taskforce to ensure that supplies are met.
At the same time, Russia has banned diesel exports, a move meant to ensure that the local markets are well-supplied. There is a risk that Ukraine will hit Russian ports in the western parts of the country.
All these events are putting pressure on Putin and his government. Recent data shows that the budget deficit surged to over 6 trillion rubles ($81.4 billion) in the first five months of the year. That was double what it was a year ago.
The crisis may now escalate because of Ukrainian attacks and the fact that crude oil priceshave retreated to their lowest levels in months. Russian Urals have tumbled to $57 and is underperforming Brent and the West Texas Intermediate (WTI). The biggest companies in the MOEX Index are in the energy industry.
These worries explains why the Russian Central Bank has embraced a relatively dovish tone. It recently slashed interest rates by 25 basis points to 14.25%. This cut was lower than the 50 basis points that most analysts were expecting.
The bank expects that the rate cut will help to boost the economy, which contracted by 0.2% in the first quarter of this year.
MOEX Index technical analysis
MOEX Index chart | Source: TradingView
The daily chart shows that the MOEX Index has slumped in the past few weeks, falling from a high of 180 earlier this month to 165 today. It has slipped below the 50-day and 100-day Exponential Moving Averages (EMA).
At the same time, the two lines of the MACD indicator have dropped and crossed the zero support level. They are all facing downwards. The path of the least resistance for Russian stocks is downwards as risks rise. If this happens, it may ultimately drop to 150.
USD/RUB technical analysis
USDRUB chart | Source: TradingView
The USD/RUB exchange rate has rebounded in the past few weeks, reaching its highest level in months. This rally also coincided with the ongoing US dollar rally, with the DXY Index moving to its highest level in months.
The pair has jumped above the 50-day and 100-day moving averages and the key resistance at 74.60, the neckline of the double-bottom pattern. Therefore, the USD/RUB will likely keep rising as bulls target the key resistance level at 85.
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