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RUB: yet another day in red


RUB’s weakening trend remains strong, dropping with no consideration of other factors. Yesterday, it weakened near 0.9-1.0% against USD (42.85) and the BASKET (48.17).

Consequently, the CBR shifted the operational band for BASKET eight times, selling USD 2.8bn in FX interventions. Thus, the total volume of FX interventions in October has exceeded March’s numbers. Apparently, we were too quick to call for a short USDRUB trade, as there is a good chance that today it might trigger our stop-loss level. Meanwhile, we highlight that Brent traded as high as USD 86/bbl yesterday (+1.0% compared to Tuesday and 2.6% higher WoW), while EM FX traded on a stronger footing for most of the session as well. In addition, RUB has become the currency with the highest carry among the liquid EM peers, as the implied 3M NDF rate widened 50bp to 10.50%, while its nearest rival, BRL, trades at 10.40% in 3M NDF. However, as has become evident during recent sessions, fundamentals currently have little impact on RUB’s performance. We therefore still believe that the CBR might take an action in order to vent the excessive pressure and volatility in the FX market.

Meanwhile, the FOMC’s meeting spoiled the risk sentiment for EM currencies late in the evening: despite the strong beginning, the bulk had lost 0.4-0.5% vs. USD by the end of the day. QE3 was terminated, as expected, and the FOMC statement retained the existing language on forward guidance; however, it also said that labour market slack is diminishing and the likelihood of low inflation is also diminishing. Net, the statement is not as dovish as the market expected (slightly hawkish at the margin, if anything, given that it downplayed disinflation risks), and the initial reaction saw the dollar spike and the 10 year yield move to 2.35%. There was also no reference to global economic uncertainties in the statement – perhaps because of the negative effect it had on US equities earlier in the month.

Maxim Korovin, Tatyana Zueva
VTB Capital analyst

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