On Wednesday, RUB lost some 0.8-0.9% vs. hard currencies and remained on a downward trend vs. other emerging market currencies. RUB is underperforming 7-8% YTD. USDRUB closed at 36.01 and RUBBASK is quoted at 42.02 in the morning. Meanwhile, USDRUB turnover was only USD 3.5bn on the MICEX despite RUB refreshing lows since 2009. The intra-day low was 42.10; however, we do not believe that the CBR was selling there in size, as it was the upper bound of the dual-currency basket the day before.
The major factor for rouble weakening was instability in Ukraine. The run on RUB started after the news broke about Russia’s military exercises next to Ukraine’s border. Besides these fears, we see a few other factors that might have had an impact on RUB yesterday: i) local banks pre-positioned for tax payments in February and their positions were cut on Wednesday; however, given average FX turnover volumes, the positioning was light; ii) the population remains net buyers of cash FX in February (to recap, the population purchased up to USD 6bn in Jan-14, we estimate); iii) UAH-invested market participants are reducing their UAH-related (the hryvnia has moved to a flexible exchange rate regime and traded in 10.10-10.50 on Wednesday) and regional risks (i.e. CIS) by buying USDRUB (however, this hedge looks far from perfect).