Yesterday, RUB drifted higher vs. USD (34.80) and vs. BASKET (40.24) in the absence of any negative headlines on the screens and as the reaction to the sanctions is gradually dissipating. Moreover, EM FX is in good shape and RUB lost 1.5% vs. emerging currencies in the last week. Export sales of FX ahead of taxes are likely to only persist until the end of this week, as corporate income tax is expected to be very light this month (about RUB 150bn on our estimates).
Moreover, it seems that corporates might have already executed the front leg of the dividend settlement (corporates in Russia are obliged to pay dividends in RUB) and steady pressure on RUB is set to resume with the conversion of dividends into hard currency. LUKOIL (1 Aug) and Gazprom (6 Aug) are the largest entities to pay dividends next week with USD 4.1bn attributed to a free-float. RUB might get support from the CBR meeting, but the market already believes that the regulatory rhetoric will be hawkish. Even if the dust settles in the geopolitical environment, RUB could follow other emerging currencies, but the political risk premium is set to remain in price and RUB’s appreciation potential is limited by an extra 1-2%.