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RUB: re-visiting the lows

Yesterday, pressure on the Russian FX market mounted once again. By the end of the day, RUB had weakened 2.2% against USD (47.06) and surrendered 2.4% to EUR (58.83). RUB kicked off on a softer footing right from the morning, so the whole session was almost one-way trading. Clearly, the performance of Brent – the price slipped 0.8% yesterday and has declined an additional 1.3% this morning to USD 75.4/bbl – remains the dominant driver for RUB (at least in terms of sentiment). Assuming an average Urals price for 2015 of around USD 70/bbl (close to the current spot), we estimate the fair value for USDRUB at around 47.00. Meanwhile, EM FX traded in the black yesterday; in particular, ZAR and TRY bounced 0.1% and 0.4%, respectively, while BRL rallied 1.1%. However, NOK closed 0.4% down. Trading activity on the MICEX declined visibly from the beginning of the week, yet USDRUB still recorded a relatively healthy USD 4.7bn in turnover. The balance in the FX market is rather fragile right now, we think, with the risks skewed to the downside for RUB. Thus, recent drop in crude oil would perhaps prevent a direct response from the CBR in the near term, since it makes it hard to distinguish between fundamental and non-fundamental pressures on the currency. Meanwhile, the CBR’s FX repo auctions still lack demand, since banks mostly need collateral to cover rouble liquidity needs, while the situation with access to US dollar liquidity does not look as tense as in August-September. At the same time, we would expect more issues down the road with US Dollar liquidity, since Russian entities have still not got access to the international capital markets. In addition, it looks like households remained relatively calm in October in terms of FX purchases and savings conversion, but that does not guarantee that another move lower in the RUB (were it to materialise) would be tolerated as much. Today, US markets are closed for Thanksgiving Day, so the trading action is likely to be subdued.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst

ruble, FX market

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