The Russian rouble has become the weakest link in the currencies of the BRICS nations with a massive 25% fall so far in 2014. The currency hit a fresh all-time low of 44.23 per dollar on Wednesday after the country’s central bank said it will abandon its intervention policy and allow the currency to move as per market forces.
The broad rally of the dollar against major global currencies also weighed on the rouble. Russia is the largest energy exporter and a sharp fall in its currency is likely to exacerbate the fall in commodity prices and vice-a-versa. Global crude oil prices have plunged more than 21% so far in 2014 and Brent crude price touched a four-year low on Wednesday.
Other BRICS currencies, such as the Brazilian real, the South African rand and the Chinese renminbi, have fallen by a far smaller margin. The Indian rupee, an outlier, has risen by 0.7% and settled at 61.41/$ on Wednesday.
The fall of the rouble has brought the spotlight back to Russia’s wheat exports. A Reuters report says that although the exportable surplus in wheat is running out, export deals have resumed after a lull in September.
Currencies of commodity-exporting countries have seen a sharp fall over the past three months. Currencies of major oil producers, such as Norway and Nigeria, all hit multi-year lows against the dollar.
Meanwhile, the broad dollar rally has also dragged the rupee down, albeit marginally as positive sentiment towards the Indian economy and high interest rates have lured a record $36 billion into equities and debt.
Ananth Narayan G, head of global markets at Standard Chartered Bank said a fall in major emerging market currencies has led to an overvaluation of the rupee in real terms. The Reserve Bank of India’s real effective exchange rate based on a 36-currency basket shows that the currency was overvalued by 9.67% in September. Currencies of commodity exporting currencies, including the Russian rouble, are part of this 36-currency basket.