On Friday, despite a rate hike, RUB weakened considerably. It lost 3.0-3.3% against both USD (43.01) and BASKET (47.88). We think market participants expected (as we did) some changes to the CBR’s FX policy as well, whereas the regulator refrained from addressing issues with USD liquidity and mounting pressure on international reserves. Thus, we are closing our short USDRUB trade as a stop-loss had been triggered, being 1.2% in the red. Meanwhile, Friday’s price action fully erased the gains of Thursday’s rally. We think the CBR is likely to address the increased FX volatility with some additional steps, but this could take some time, while pressure on RUB is likely to rise.
This week crude oil prices slipped to USD 82-83/bbl, while the Russian exchange market was closed for the public holidays. Even though RUB showed little correlation with crude oil last week (the commodity was stronger and RUB continued to fall), we think BASKET will open today at the CBR’s offer (48.55, i.e. RUB at 1.5-1.7% weaker vs. Friday) and then move quickly higher. In particular, NOK has slipped near 1.5% this week, yet the EM FX index declined only 0.2%. In addition, banks are likely to be covering their accumulated short position in RUB due to holiday spending abroad and FX cash purchases over the long weekend.