Russia vs Ukraine and Affects on Global Forex Markets

Russia vs Ukraine and Affects on Global Forex Markets

Russia vs Ukraine and Affects on Global Forex Markets

The world’s eyes are back on Ukraine as they were in 2013. The threat of a Russian invasion looms large again but not without the drawbacks of economic hardship.

Russian troops amassing on Ukraine’s border are growing in number. Recent estimates suggest that over 100,000 land troops are currently deployed near the border, while 21,000 troops are deployed either in the Airforce or Navy.

There are talks that the Russian army is planning to move a battalion of S-400s air defence systems to the region in a bid to maintain air superiority.

However, these are not the only men on the ground that are under Russian control.

There are around 35,000 rebels on Ukrainian soil currently in the Donbas and Luhansk regions. Russian presence is not only confined to the Ukrainian border, as there are Russian troops in Belarus on a training assignment.

It is not unlikely that the Kremlin might call on these troops along with Byelorussian forces to open another front with Ukraine. Nevertheless, the Kremlin maintains that their forces in Belarus are there only for training exercises.

On the opposing front, the Ukrainian military says it is ready to face any Russian aggression.

Ukraine is receiving defensive support from the West, namely anti-tank and anti-air systems from Baltic Nations and the NATO alliance, as well as political support on the world stage.

The US also ramped up its support to the Ukrainian government by approving a $200M dollar package for military aid.

The government in Kiev feels that with the West’s support, they are in a better shape to defend themselves compared to 2014-2015.

Military strategists believe that the Ukrainian military, with the aid it has received, is capable of bogging down the conflict to a bloody stalemate.

All this could change if the West decides to intervene in a more “boots on the ground” attitude.

The US has the initiative for such a move, especially if the greenback has anything to say about the matter.

At the pace of current politics, the USD is expected to hike up in March, as the Fed is preparing an interest rate hike. The Fed expects that inflation will drop and leaves room for speculation on wages as they focus on raising interest rates.

This is reflected clearly when looking at the S&P and DOW Jones; they have broken their three-week losing streaks after pumping into the green for the first time at the end of last week.

It seems that even a hawkish Fed is not stopping the USD’s climb. In fact, the market opened this week with a bullish performance for the USD as traders are emboldened.

Fact of the matter is, not all Russian forces are ready for a conflict.

Many Russian logistical units simply do not have enough trucks to manage a major offensive.

The Russian military normally operates its logistics with trains, which proves to be a major issue because Ukrainian railway gauges are different from Russian ones.

This could be good news for future markets, but currently, the atmosphere bodes negatively on European markets, especially the Russian one.

This is spelling bad news for the Russian Ruble as the instability is leading to major Russian asset sell off.

This upset has been felt in the Russian forex trading market as the RUB is facing the backlash. These events are reading out similarly to what happened back in 2013.

The RUB is down by 7% compared to the USD, which makes the RUB the worse performing currency when the market closed on Friday.

Rising tensions between the East and the West are not only affecting the RUB, but other currencies are also feeling the pressure as well.

The Euro dipped 0.4% compared to the USD, and the Euro market dropped hard last week to reach levels not seen since October.

The market dropped 3.8% sending the EU market into a small panic. Some argue it could be a correction; however, the signs are clear that the Russo-Ukrainian crisis is manifesting its effect.

The Bank of Russia has stopped buying foreign currency, in a bid to try and curb the instability and induce confidence in the RUB, although the volatility of the situation is not so easily calmed.

Keeping to the EU and EEA markets, CEE currencies are holding strong now especially considering their stance on the Ukrainian crisis.

The Budapest (.BUX), Prague (.PX) and Bucharest (.BETI) markets continue to hold strong facing rising tensions, but with whatever strength they are holding, inflation might eat away at trader’s pockets.

This is becoming very apparent when speaking about purchasing power of the CEE.

Czech and Slovak nationals are threatened with rising costs and tax hikes as the year continues. It is speculated by the Czech Central Bank that inflation would reach a staggering 9.8%.

This happened after Czech Prime Minister Fiala stated that 2022 will be a hard year for Czechs.

Citizens of western countries are also facing mounting inflation not witnessed since the 2008 economic crisis. Some are scared that the CEE countries are going into a bear market.

Discussions in these markets all warn of what might happen if the tensions are not released or properly managed.

In London, the FTSE has been shaken by the crisis, which further corroborates the effect of the crisis dropping by 2.6%.

Meanwhile DAX also suffers a sharp fall as markets close on Friday. London is looking gloomy currently.

This sentiment is shared by other European markets, now that Q4 reports are finally here, we can see the extent of the damages done by the crisis before the end of 2021.

Starting with the German market. It has slumped by 0.7 % raising concerns that one of the strongest EU economies is starting to fall into a recession.

The French market also joins this parade and suffer some losses of 2% in Q4.

On the swiss front, the CHF witnessed a dip of 0.2% compared to the Euro.

As it is common knowledge, the Swiss Franc is one of the strongest currencies, as it is not as easily shaken by such events as others. Unfortunately, the cracks are starting to show.

The German economy is starting to tighten but it does not come out of nowhere.

Germany relies heavily on Russian gas for energy purposes, and as this crisis gets worse, the noose tightens on them and other European nations’ energy supply needs.

Germany feels the tightening more than others, as it is the most dependant; however, the majority of western Europe depends on it too.

The Kremlin controls that vital tap, and politics being politics, this power is being used for gain.

European leaders are forced to rescind their aggression towards Russia or expect a very cold winter.

The US is expected to intervene financially to help release the metaphorical vice, but it is not an easy feat to complete.

As it stands, efforts are underway to find alternative gas sources. The deficit can be circumvented, but it will be costly. An undertaking of that size would require direct shipments from the middle east and a lot of financing.

LNG (Liquid Natural Gas) is already expensive to begin with, and altering current trade routes would seriously stress the existing supply.

Norwegian Prime Minister Jonas Gahr Støre has gone on record to say that Russia’s Gas game will not be a viable course of action, as Norway is willing to maximize its Natural Gas output.

While these events are unfolding in Europe, other parts of the world are continuing with a business-as-usual mindset.

In regions such as South America and Australia, the sentiment has soured a bit, but trading continues a downward spiral, unfortunately.

The AUD/USD index is down a path of correction, but previous predictions of its holding to 0.7030 have failed to materialize. It seems that energy has shifted away from the AUD.

In South America, the Brazilian Real is also facing major difficulties but that is mostly due to the coronavirus pandemic. It’s 5-day performance is down at -1.42%.

To summarize, Russian aggression forces the global forex market into a crux, as they amass more than 100,000 troops on Ukraine’s border.

European markets are starting to choke under threat of imminent invasion such as the FTSE and the DAX.

CEE currencies hold strong but might buckle if the situation is not remedied soon.

The stable currency of the Swiss Federation is showing signs of impending dip.

Global perturbations are looming over global markets. This fact is also corroborated by the Euro dip and, unsurprisingly, the RUB.

There is trouble on the home front for Putin’s Russia as the RUB is teetering of a long cliff. Major Russian sell offs are pushing the market into a frenzy.

The USD seems to be unaffected by the recent developments.

If anything, it is impressively pumping as the US mobilizes its economic might to try and protect its allies in NATO from impending energy shortages.

The S&P and the DOW are finally on the up and up as they break their three weeks long losing streak.

We can say that we got a sneak peek of what is to come, should Russia take the step of no return. The world might be on the brink of another Cold War.

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  1. […] Russia invades Ukraine and the war turns into a gorilla war that lasts for many years, the price of grain is likely to […]

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