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Page added on November 8, 2014
The Petrodollar Dominoes: How The Strong Dollar Is Slamming Oil Exporters
A week ago the Russian Ruble exhibited intraday volatility that makes the JPY look quiet when it crashed to record lows then soared dramatically on intervention hopes. Since then we have had a Russian Central Bank disappointment and some jawboning which did nothing press the Ruble to record-er lows against the USD. Then today, last week’s volatility in the Ruble was dwarfed when USDRUB blew past 48.5 only to be sent soaring (USDRUB lower) below 46 on hope of intervention. Russia is not alone. The Saudi Riyal has seen massive vol in recent weeks and Nigeria, another oil-producing nation, saw the Naira collapse yesterday then soar 8 handles this morning on what is confirmed intervention by the nation’s central bank. It appears the strong dollar is becoming an issue for the world’s oil-producing nations…
Ruble vol explodes on hopes for interventions…
And Nigeria’s Naira plunged then soared today on confirmed intervention…
And then there is the massive volatility in the Saudi Riyal
As the humpties of the BRICS fall off the wall one by one…
It would appear the strong dollar is having significant implications for the rest of the world.
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Bank of Russia has issued a statement
- *BANK OF RUSSIA READY TO INCREASE INTERVENTIONS AT ANY TIME
- *BANK OF RUSSIA: WEAKER RUBLE NOT NEEDED FOR BALANCE OF PAYMENTS
- *BANK OF RUSSIA SEES RUBLE VOLATITY CONTINUING AS MKT ADAPTS
- *RUBLE NEEDS TIME TO ADAPT TO NEW POLICIES: BANK OF RUSSIA
On the foreign exchange market
In recent months, the dynamics of the ruble exchange rate and its impact on the financial and real sectors of the economy is causing concern. The observed weakening of the ruble caused by a number of fundamental factors, primarily, lower oil prices and limited access to external capital markets.
In order to limit the rate of depreciation of the ruble only during October the Bank of Russia intervened in the amount of 30 billion. US dollars.
The Bank of Russia November 5, 2014 decision to change the mechanism of exchange rate policy, along with an increase in the key rate and the introduction of currency repos are part of a package of measures aimed at ensuring financial and price stability in the new environment.
Changes in the exchange rate policy aimed at accelerating ruble equilibrium value, the rate of reduction of excess spending reserves, preventing the formation of stable devaluation expectations in continuous depreciation of the ruble. In addition, this solution will help minimize the impact of the foreign exchange market on the structural liquidity deficit. At that exchange rate flexibility achieved allow to mitigate the impact of external shocks on the financial sector and the economy as a whole.
In accordance with the decision logic course started to adjust, which is accompanied by an increase in volatility. The adaptation process of the currency market to a new mechanism of exchange rate policy will take some time, during which there may be multi-directional movement of the course.
According to the Bank of Russia, taking into account the package of measures and the depreciation of the incident further weakening of the ruble is not required to achieve the balance of payments.
In recent days, there are signs of excessive demand, which creates conditions for the formation of the risks to financial stability. In these circumstances, the Bank of Russia is ready to increase foreign exchange intervention at any moment, and to use other means at its disposal financial market instruments.
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3 Comments on "The Petrodollar Dominoes: How The Strong Dollar Is Slamming Oil Exporters"
Makati1 on Sat, 8th Nov 2014 7:14 pm
Nothing new here. Russia will manage quite well, but the same cannot be said for the EU, Japan, or the USSA. Russia is relatively stable (low debt & resource independent) compared to the three governments mentioned.
All this is doing is forcing Russia East and hurting some of the elite in Russia that Putin wants to control. And, Putin knows that Europe has no realistic alternate to his natural gas in the next few years. None.
Fun to watch the West keep shooting off their own legs while they slide down the ladder of success. The rest of the world is moving away from the West and the USD faster and faster every day.
Davy on Sun, 9th Nov 2014 7:09 am
OH, Mak, spoken like a true propagandist you are. To say Russia is not faced with serious financial issues is like Bagdad Bob saying “There are no American infidels in Baghdad. Never!” when 3rd IN DIV (MECH) was heading to the city center. Let’s look at this issues in a fair and balanced way.
What are Russia’s comparative advantages in our Ukraine cold war standoff? We know Russia has energy and the energy export card. That is a significant card to have and one worth gambling on. Who is going to blink first when the energy card is applied? Although it is a better threat then actual tool. Using energy as a tool will cause all kinds of disruptions financially and with trade globally. That would be messy for Russia also. The energy card still is paramount if an end game plays out.
To a lesser extent Russia has its self-interested Bric friends especially China. Russia is pivoting to Asia. This Asian pivot is smart and a good way to diversify trade channels and financial flows. The big issue here is the costs being extracted from Russia. China is playing hardball with these trade talks. We can be sure a premium is being paid by Russia. Only the beginnings of this process have started. It will be a year or two before the infrastructure both physical and financial are in place.
A lose military alliance of sorts with China is likely but forget a significant trade bloc organized against the west. China’s two biggest trading partners are the EU and the US. China operates on self-interest more than all other major economies. It is not in China’s self-interest to turn away from the US and EU.
Russia’s economy is just too small to make the major impact with trade in the world of global finance. Russia is burning through foreign reserves. Its financial position with its currency and debt financing is deteriorating. There is capital flight and growth is stagnating. The financial sanctions along with the oil price drop are a serious issue. It is this combination that is dangerous for Russia.
What Russia does have is popular support for an effective and strong leader. It has a longer term plan to pivot to Asia. It will surely win any energy war. Ukraine long term cannot survive so it seems likely it will be divided out of necessity as the coming energy crisis deepens. Russia owns the long term but the big question is how long can Russia survive the short term? How long will this drag out before oil prices rise and Russia accomplishes an Asian pivot?
IMHO Russia has what it takes to hold out and make the pivot. Will this really pay off for Russia? I would say yes and no. The wealth lost may never be made up. The strategy of greater security by a diversifying Russia’s trade relations will be a big win. Diminishing the dollar and creating an Asian trade bloc based around china is a win. It remains to be seen what Russia is paying for this pivot to China. Russia will achieve an energy discipline on Europe and Ukraine through all this. Gone will be the days of Ukraine energy games. If Putt can stick it out and not blink I believe he may win. That is a big if in today’s world. A doom scenario of a crashing BAU benefits this Russian strategy long term.
.5mt on Sun, 9th Nov 2014 7:51 am
Nice work Davy, you surprised me yet again.