According to Nasdaq, the Bank of Russia has suspended all forex trading of euros and dollars, as of Wednesday. This comes with the news that ruble and oil prices are at their lowest for quite some time. This isn’t the first time the central bank has intervened in forex matters, yet it does seem to be the most drastic. Let’s take a look at the reasons behind this bold move. Along with what it means for traders on the forex market.
For the first time since March, the ruble has weakened to desperately low levels. The drop on Wednesday meant that rubles were worth 67 against the euro and 60 against the US dollar. The Bank of Russia quickly stepped in to stop forex traders buying or selling in an already weakened market. The bank itself stopped buying foreign currency as of Wednesday morning. Usually, dollars are purchased on a daily basis for reserves. The four-month low for the ruble is a big threat to inflation, which is already unusually high.
It is thought that the slump in oil prices around the world has played a big part in the problem. Many countries are now refusing to buy from Russia, due to their recent blows with Ukraine and the United Nations. This has caused their economy to become extremely unstable. One of their biggest commodities is no longer being exported regularly. This has created significant problems for the country and its citizens. The global drop in oil price also means that the little they do sell isn’t bringing in the usual high price. The Bank of Russia was hoping to slash interest rates this year, in order to stabilize the economy more. However, with the ruble weakening like it has, their plans have been set back even further.
What it Means for the Forex Market
Essentially, this hasn’t had too much of an adverse on the market. If you do forex trading on your own then you’ll probably have already dealt with the issue. Most brokers were also quick to react to the changes. According to the most recent reports, the ruble actually began to strengthen once the initial news was released. It rose to 59.5 by mid afternoon in Moscow time, which was probably a relief for Russian traders. However, they’re not completely out of the water yet. The power the central banks have over the currency exchange may put people off from trading in the future. There’s always the worry that they’ll stop trading on the forex completely. Which could then lead to a huge drop in investors profits. This all depends on whether they continue with their plan to cut interest rates. In a bid to pull the country out of its long-standing recession.
As of right now, the Bank of Russia has made no official statement. All that we know is that they will be suspending forex trading until further notice. While this may not be a new tactic for Russia, it certainly is a worrying one for the market. In particular, for those who trade ruble currency pairs on the foreign exchange.