Lee Hardman, Currency Analyst at MUFG, suggests that the major foreign exchange rates have remained relatively stable during the holiday period.
“Emerging market currencies have continued to underperform so far this month. Renewed weakness in the Russian rouble has been most notable so far this week lifting USD/RUB to its’ highest level since the same period of last year. The rouble has been undermined by the renewed weakness in the price of crude oil which has fallen by around a fifth so far this month.”
“The rouble appears fairly valued based on the lower price of crude oil according to our short-term regression model. The renewed decline in the price of crude oil has lifted our model’s valuation estimate for USD/RUB by around 5 big figures so far this month. The Russian equity market has also lost around 15-20% of its value during this period. Developments in the price of crude oil will remain in close focus in the New Year to see if renewed weakness is sustained. Crude oil exporting countries such as Russia will face even larger negative economic shocks if oil stabilizes at current lower levels favouring weaker domestic currencies to support the required economic adjustment.”