Friday was a rather volatile session for RUB amid ongoing turmoil in Ukraine. Hence, in the first half of the session USDRUB surged from 35.65 to almost 35.90, while simultaneously BASKET climbed up to 41.87 against Thursday's close of 41.72. However, later on RUB rallied markedly and went on to close at 35.53 and 41.49 against the US dollar and BASKET, respectively. Thus, RUB firmed near 0.6-0.7% against both the US dollar and BASKET for the whole session, having outperformed many EM FX peers. We think RUB performance in the second half of the day was driven by some relief in Ukraine's political crisis as street violence came to an end. Also, we suppose exporters started actively selling hard currency in preparation for tax payments this week (MET is on 25 February). Finally, a general rebound in the EM FX space ignited some profit taking in RUB shorts, since RUB remains the laggard YTD in the family of liquid EM currencies.
What's next? We think RUB is well positioned for further strengthening, unless the situation in Ukraine escalates. Another unknown factor is the demand for FX from Russian households, which has mounted over the last couple of months: if it persists, RUB might continue to struggle. Nevertheless, we highlight that RUB has continued to underperform EM FX peers, by about 6.0% YTD and near 2-3% since the beginning of May. At the same time, we do not see substantial fundamental justification behind the weak price action. On top of this, we think BASKET has slipped below some important resistance levels (i.e. likely at 41.65 many stop losses were triggered), so now the path for RUB appreciation looks easier.