A Dramatic Turn! Russian Ruble Emerges as the World's Best-Performing Currency in the Trade War, Surpassing Gold's Gains

After the US government launched a full-scale trade war, global financial markets were in turmoil. However, it was unexpected that the Russian ruble became the best-performing currency globally this year, with its gains far surpassing those of gold, a traditional safe-haven asset.

Data shows that, year-to-date, the Russian ruble has risen by 38% against the US dollar in over-the-counter trading. The US dollar faces significant pressure due to escalating tariff wars initiated by US President Trump, while the ruble is supported by several Russia-specific factors, including record-high interest rates.

Other emerging market currencies often face a common issue: when the global economy is unstable or investors perceive excessive risk, many foreign investors withdraw funds from these countries. However, the ruble does not face such capital outflow pressures.

Sofya Donets, an economist at T-Investments, stated, "Capital controls have largely protected Russia from this situation, and high borrowing costs are also supporting the ruble exchange rate."

Although a series of sanctions by Western countries remain in place, certain domestic policies and economic conditions in Russia are also contributing to the ruble's appreciation. This situation is undoubtedly good news for controlling inflation, but it may reduce energy revenues at a time when the country is making large-scale expenditures for military needs and social programs.

Persistent inflation has forced the Russian central bank to maintain an extremely hawkish monetary policy stance—the benchmark interest rate currently stands at 21% and has remained unchanged for several months. This has suppressed demand for imported goods, thereby reducing the need for foreign currency. Meanwhile, exporters are required to sell a portion of their foreign exchange earnings in the local market, further driving the ruble's appreciation.

Of course, signs of a thaw in US policy toward Russia have reignited the ruble's appeal in carry trades. Iskander Lutsko, Head of Research and Portfolio Management at Istar Capital, noted that despite the ongoing sanction risks, foreign investors are still turning to countries that maintain good relations with Russia to access high-yielding ruble assets.

Lutsko added that, beyond this, Russian companies are eager to use much cheaper yuan loans to refinance costly domestic debt, which is driving more foreign currency conversion into rubles.

At the same time, the US dollar index has fallen to a six-month low, as Trump's latest unpredictability on tariff policies has heightened investor unease about US assets and weakened confidence in the US dollar and Treasury bonds as the ultimate risk-free safe havens.

Anticipating more turbulence and uncertainty ahead, traders are selling US dollar assets and buying gold instead. The precious metal has risen by 23% since the beginning of the year, reaching a historic high.

Economists point out that the ruble's strength is multifaceted. First, the thaw in relations between Putin and Trump has boosted confidence in the Russian market. Second, tight monetary policy is cooling demand for imports among businesses and consumers. Third, the Russian government is protecting the economy from falling oil prices by selling hard currency from its sovereign wealth fund.

Another dramatic point is that Russia will be immune to Trump's tariff policies, as the two sides have long severed almost all trade ties.

Notably, since June 13, 2024, dollar trading on the Moscow Exchange has been suspended due to sanctions, shifting related trading activities to the over-the-counter market. This has increased the complexity of price discovery and led to a gap between domestic and international prices.

The Russian central bank stated that the ruble's appreciation may be due to improved geopolitical conditions and renewed investor interest in Russian assets. The report also noted that Russia's relatively high benchmark interest rate could be another factor.