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RUB: widening the gap to EM FX

Once again, RUB yesterday traded apart from the rest of the EM FX universe: by the end of the day, RUB had lost 0.3% against USD (36.11) and 0.5% to BASKET (42.16). Selling pressure on RUB mounted right from the morning and persisted for the whole session. Meanwhile, most other EM currencies closed stronger against USD: BRL firmed 1.3% and ZAR advanced 1.1%. Therefore, RUB is now underperforming the average EM FX index by almost 9.0%, a record wide during recent years. Ongoing political turmoil in Ukraine weighed on the RUB, in our view; we also believe that the bid for hard currency from households probably increased, as this is generally a function of RUB’s spot volatility and weakness. Overall, we now believe that RUB is being driven purely by sentiment: the market and people on the street are selling RUB simply because they feel it is right. We believe that the only tail risk that could possibly justify such underperformance is a scenario in which Ukraine’s crisis escalates with Russia being much more deeply involved. All other negative factors for RUB are more than priced in already, in our view.
Maxim Korovin, Anton Nikitin
VTB Capital analyst


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