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RUB: underperforming crude oil

Yesterday, RUB weakened 4.3% against USD to close at 53.97. In the morning, the FX market traded on a stronger footing for a couple of hours, but pressure mounted later. As we have highlighted before, one of the main factors behind RUB’s poor performance is the rapidly building US dollar deficit issue, which basically means that on a marginal basis USD liquidity is more expensive than RUB liquidity. Clearly, it carries some negative spill over into the FX spot market: with implied volatility of 35-40% and daily swings around 4-5%, rouble interest rates at 10.50-11.00% do not look high at all. In addition, there was Brent’s near 2.2% decline, which also produced some pressure in NOK (-1.3%). Finally, the Ministry for the Economy announced revised economic forecasts for next year based on an assumption of oil at USD 80/bbl. Consequently, the Ministry sees the average USDRUB rate at 49.00 next year. We estimate RUB’s fair value at 42-43 against USD at these crude oil levels. Nevertheless, given that spot Urals is below USD 70/bbl, the message was negatively perceived in the market. Overall, we highlight that RUB weakened 39.1% YTD, while Brent crude oil slipped only 32.1% in the same period. Looking forward, the issue with USD liquidity is not going to dissipate on its own as monthly redemptions proceed, we think, so RUB might remain under the pressure, in our view.
Maxim Korovin, Tatyana Zueva
VTB Capital analyst

ruble, oil

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