RUB gained 0.5% vs. USD and closed at 33.19. RUBBASK moved below 38.0 to 37.97 but closed at 38.05 after the CBR announcement and crude oil prices declined to USD 112.7/bbl. Overall, RUB is lagging EMFX peers on the upside and now looks the weakest currency in terms of historical volatility. However, this is in line with our expectations because RUB was outperforming EMFX on the downside by as much as 2.5-3.0%. Moreover, RUB was not pricing in an increase in crude oil prices on a move to USD 116/bbl, so we expect the downside reaction to be muted as well.
The CBR announced that the volume of unplanned interventions had been revised down from USD 450mn to USD 400mn. It stressed that decision was not linked to the Ministry of Finance’s intention to conduct FX purchases on the open market. Furthermore, we would need a few trading days in the respective RUBBASK ranges to confirm whether the daily intervention volumes have been left unchanged. All other things being equal, this means that the BASKET band would be adjusting marginally faster in response to FX market volatility (e.g. 8 vs. 9 trading sessions in the USD 200mn intervention zone translate into a shift) and the CBR will absorb less liquidity over the longer term. Hence, this increases the chance for another MTRO auction as CBR might prepare the ground for a prolonged impact for its liquidity actions.
The market could view this action as a bit negative for RUB, which has been outperforming the EMFX spectrum recently, among other things due to the CBR’s interventions. However, we believe that the alteration to the CBR’s intervention mechanism is marginal, even if daily intervention volumes were touched. More importantly, we think that this decision removes the risk for band widening in the near future, hence, no CBR-related risks are skewing RUB towards the downside at the moment. This is positive for the Russian currency. Considering that the momentum in EMFX and tapering are almost priced in to market valuations, it makes sense to enter short RUBBASK positions at 38.05, in our view, with a target at 37.50.