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RUB: against all

Yesterday, RUB continued trading heavily, despite the rebound of EM FX. In particular, we highlight that ZAR and TRY firmed 0.8-1.0% vs. USD, while BRL pared some of the earlier losses to close 1.7% stronger. Overall, the EM FX index gained near 0.4-0.6% against USD. Disappointing US statistics on durable goods likely fuelled expectations that despite the termination of the QE programme, the Fed is to maintain a balanced approach towards monetary policy, keeping rates low in the medium term without adding hawkish rhetoric to the press release. Hence, the S&P500 ended 0.5% in the black, while Brent crude oil also advanced, rising 0.6% to USD 85.84/bbl. However, ignoring these factors, RUB weakened near 0.5% against USD (42.49) and surrendered 0.6% to BASKET (47.73). Thus, the CBR has shifted up the operational band seven times, selling around USD 2.5bn in FX interventions, while total trading turnover was USD 8.0bn. Overall, RUB’s underperformance vs. the EM FX index has reached 22% YTD. In our view, given the strong negative sentiment and dynamics in the FX market coupled with the fact that the CBR has already sold in FX interventions almost as much as it did back in March, we suppose that the probability of some kind of a change in the policy set-up has materially increased. In our view, it might be a combination of outright monetary tightening together with the overhaul of the FX interventions policy. Meanwhile, even if oil prices remain at USD 80-85/bbl, we think RUB has already overshot against the fundamentally justified levels. Consequently, we recommend selling USDRUB ahead of the CBR’s policy meeting, especially if pressure in the FX market persists in the next couple of days. In addition, RUB’s carry looks quite interesting now. Today, the CBR’s 28-day FX repo auction is set to be in focus – the results are expected to come out around 16.00 Moscow time (13.00 GMT).
Maxim Korovin, Tatyana Zueva
VTB Capital analyst

ruble, basket

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