Objective #1: EVALUATION OF THE SIGNIFICANCE OF OIL PRICE IN PREDICTING THE USD/RUB RATE.
Among many other factors that define the exchange rate of USD/RUB, such as inflation rate, interest rate,, and government debt, we wanted to evaluate the extent to which the oil price affects the USD/RUB rate.
Objective #2: PREDICTION OF USD/RUB AVERAGE IN JUNE 2022.
Using different models, we aimed to predict the average exchange rate of USD/RUB in June 2022 as such prediction is valuable for financial decision-making of individuals and organizations.
Step 1: EXPLORATORY DATA ANALYSIS
EDA showed that after the devaluation of the ruble followed by Russia’s first invasion of Ukraine in February 2014, the rate of change of USD/RUB only stabilized in early 2018
Step 2: SPLITTING DATA TO TRAINING AND TESTING SETS
Data was split from 12-2003 to 02-2018 and from 03-2018 to 05-2022 for training and testing sets respectively (77/23 ratio.)
Step 3: LINEAR REGRESSION MODEL
Linear Regression models were built using different combinations of features.
Step 4: KERAS DEEP LEARNING MODEL
Keras Deep Learning models were built using different combinations of features.
- Jupyter Notebook
The following Python packages were used for this project:
- bs4
- requests
- pandas
- dateutil
- numpy
- matplotlib
- sklearn
- keras
The following forecasting methods are explored in this project:
- Linear Regression
- Deep Learning
Since confident level of all six models have a very similar range, mean absolute percentage error played a major role in choosing the linear model with only four variables of USD/RUB exchange rate and Oil Price.
Exploration confirms the findings of earlier studies that oil price is a significant factor in forecasting the USD/RUB value due to Russia’s oil-dependent economy (Kim,2018). Using the two currency exchanges (USD/RUB and EUR/RUB) and one (USD/RUB) produces different results as currency included oil price factor. The effect of oil price was also confirmed by feature analysis of linear model.
The predicted value confirms the trend observed in the previous invasion, which caused a rapid devaluation of the Russian currency, followed by its rapid revaluation - the current state of the ruble.
Exploratory analysis is also reflected the effect of regulations of Russia as a response to Western sanctions, namely its strict selling of oil in the ruble (McCabe,2022), which resulted in a rapid strengthening of the currency, which is expected to be observed in June.
Project is: complete
- Data was collected by the U.S. Energy Information Association, Yahoo Finance