Trading the Romanian Leu: What To Know
Romania was a member of the Eastern Bloc for many decades, but things seem to have changed since the country joined the European Union (EU), especially when it comes to economic conditions. As the Romanian economy grows stronger, trading the Romanian leu (RON) against the major currencies seems to be becoming an option for some traders.
In this blog, we will share with you some valuable insights regarding the Romanian leu and the Romanian economy that may prove useful to a currency trader.
Table of Contents
Romania’s Economy, The Romanian National Bank And The Leu
Romania became an EU member in 2007, after years of economic hardships. Access to EU funds and economic reforms have helped the Romanian economy strengthen. According to the World Economic Outlook report published by the International Monetary Fund (IMF), the Romanian GDP is expected to grow by 2.4% in 2023, revising downwards its previous forecast that suggested 3.1% growth. IMF’s analysts forecast the Romanian GDP to grow by 3.7% in 2024.
Romania, like most countries in the old continent, has been plagued by high inflation figures in the last few months. Consumer prices are forecast to rise by 10.5% in 2023 before the rate halved to 5.8% in 2024.
The European Commission stressed that “overall, real GDP is projected to grow by 3.2% in 2023 and 3.5% in 2024. Risks to the forecast are tilted to the downside as delays in the implementation of the Recovery & Resilience Plan (RRP) could reduce investments. Average HICP inflation is set to fall to 9.7% in 2023 and to 4.6% in 2024, but risks are tilted to the upside as wage increase pressures are high.”
The National Bank of Romania (Banca Națională a României - BNR) was established in 1880. The BNR’s primary objective is to ensure and maintain price stability, design and implement the monetary policy and the exchange rate policy, while also issuing the Romanian leu.
The first Romanian leu was issued in 1867. An interesting fact is that the Romanian leu was briefly the world's least valued currency unit for some months in 2005, but a lot has changed since then. Romania is not a part of the euro bloc yet as the plan for adoption of the single currency has pushed the target date to 2026.
Trading the Romanian Leu: Currency Performance
The Romanian leu has seen better days as can be seen on the Monthly Chart below. The Romanian currency hit a multi-year high against the US dollar trading at RON 4.39 in April 2020.
Date Range: October 1st 2017 – September 7th 2023. Date Captured: September 7th 2023. Past Performance is not an indicator of future results.
During 2020, the Romanian leu recovered some ground against the US currency, however started to weaken again in the second half of 2021. On September 1st 2022, the leu traded at RON 5.05 against its US counterpart.
Date Range: February 20th 2023 – September 7th 2023. Date Captured: September 7th 2023. Past Performance is not an indicator of future results.
The above daily chart shows that the Romanian leu has gained some strength with the USD RON exchange rate fluctuating between 4.4 - 4.6 in 2023.
What Do Analysts Say About The Romanian Leu And The Economy’s Performance
ING’s analysts expressed their concern regarding Romania’s economic growth. In their mid-August report, they wrote: “We’ve had a long-standing GDP growth forecast of 2.5% for 2023. While the detailed data due on 7 September might shed a different light on the growth dynamic, we are already revising our 2023 GDP growth forecast to 1.5%, while maintaining 2024 at 3.7%.”
The report included comments on the NBR’s monetary policy implementation, noting: “depending on the specifics of the budget revision due later this month, risks might be skewed slightly to the downside. We believe that the NBR is not yet contemplating the timing for a dovish pivot, despite the more frequent dovish statements coming from other central banks in the region. We maintain our view of a first rate cut in the first quarter of 2024 with a key rate of 5.5% by the end of 2024.”
Commenting on the September 7th set of financial data related to the Romanian economy, economists at Erste Bank said that they reaffirmed their FY 2023 GDP growth forecast at 2.1%. Their report noted: “Economic growth was confirmed at 0.9% q/q and 1.1% y/y. Romania seems to have one of the fastest quarterly growing paces in the region in 2Q23, although the annual figure decelerated for the second quarter in a row in 2Q23 after peaking in 4Q22, a trend which is likely to continue in the following quarters. For 2024, we forecast a rebound in GDP expansion to 4.2% y/y driven by consumption on lagged impact from real wage growth and spill-over effects from state investments.”
Market analysts at BCR Bank suggested that the Romanian leu won’t weaken this year by more than 2-2.5% on average compared to the average of last year. The BCR’s chief economist said that “we believe the leu will weaken to 5.05 to the euro by the end of the year as the sharp decline in inflation allows the central bank to allow some currency weakness to discourage foreign currency loans to the corporate sector, which have recently increased from the cause of the growing difference between interest rates.”
Risk Management When Trading The Romanian Leu
If you would like to add the Romanian Leu to your trading portfolio you should keep in mind that there is a certain risk when trading currencies or any other financial instruments. Being a beginner trader means that you may not have the knowledge to identify when to stop trading or which moves could benefit your strategy.
Learning how to trade should be your primary goal. If you wonder how the answer is rather simple. Studying how trading works is the thing that every new trader should put first on his list. Forex brokers and trading educational hubs offer a wide array of educational materials such as webinars, e-books, seminars, blogs etc., that could help beginner traders understand how trading works and the possible pitfalls.
Risk management is another thing that beginner traders should not ignore. Modern trading platforms support traders with advanced risk management tools that could help them reduce their losses in the event of a market downturn. It should be noted that risk management tools do not eliminate risks, but can help you protect funds, even in the case of some trading mistake from your side. Therefore, risk management tools should not be ignored by beginner traders who want to enjoy the trading experience without losing much needed funds in the process.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
