The Russian ruble dropped more than 3% against the U.S. dollar Wednesday and extended its dive to a 2-year low on Thursday, as further U.S. sanctions appeared at the horizon.
A draft Senate bill proposing tough new sanctions for Russia’s role in interfering in the 2016 U.S. presidential election was published Wednesday by local Russian newspaper The Kommersant . The bill could include prohibiting U.S. entities from purchasing Russian debt securities and limit Russian banks’ operations in the U.S. Later in the day, the U.S. announced separate sanctions against Russia over a chemical-weapons attack.
That sent Russian assets into a downward spiral and turned the ruble /zigman2/quotes/210561862/realtime/sampled USDRUB +0.0814% to one of the biggest losers of the session Wednesday, dropping 3.3%. The ruble continued its tailspin on Thursday, as the U.S. dollar flexed its muscles against many of its rivals, with one buck last buying One U.S. dollar last bought 66.381 rubles, compared with 65.602 late Wednesday in New York, a level not seen since August 2016. Since the beginning of the month, the ruble has shed more than 6% against the dollar.
“A break of 65 sees a lot of open chart space above, with 67.53 the next level on the charts after that,” said Brad Bechtel, managing director in FX at Jefferies. “A test of that level would be important on the longer-term charts and could signify that we have indeed changed trend on this pair for the foreseeable future.”
Sanction talk has rattled the Russian currency before, and analysts expect more pain ahead, leading the ruble to weaken 13.5% against the dollar in 2018 so far, according to FactSet.
“The unpredictability of the sanctions strategy under the Trump administration will keep the risk premium on Russian sovereign debt elevated, with its level far above that justified by fundamentals, thereby making Russian assets more attractive,” wrote Oxford Economics senior economist Maya Senussi.
“U.S. foreign policy vis-à-vis Russia has become more erratic with frequent backtracking,” Senussi added. But “a ban on trading or holding Russian debt has, on a number of occasions, been referred to as ‘too risky’ by the U.S. Treasury Department, making it an unlikely but not an impossible step.”
Also Wednesday, NBC reported the Trump administration signed off on sanctions against Russia to punish it for using a chemical weapon against former Russian intelligence officer Sergei Skripal and his daughter in the U.K. Those sanctions are to take effect around Aug. 22, the State Department said in a statement.
Russian ETFs also extended their slump from Wednesday, with the iShares MSCI Russia ETF /zigman2/quotes/206979425/composite ERUS -2.02% falling 0.1%, while the VanEck Vectors Russia ETF /zigman2/quotes/200464876/composite RSX -1.40% was down 0.3% on Thursday. Since the beginning of the month, both ETFs have lost almost 7%, according to FactSet.