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RUB: can’t resist the oil

Yesterday, RUB weakened 1.7% against USD, closing at 53.80 amid fairly low trading activity: total turnover in the MICEX was just USD 3.6bn. A triple-whammy of disappointing economic data, alongside fresh slippage in the oil price, was the main focus for markets yesterday. The latest trade data for China featured slower export growth and a 6.7% decline in imports. In Japan, real GDP growth for 3Q14 was revised down to a 1.9% annualised decline. Hence, EM FX index slipped 0.4%. Brent crude declined 3.7%, scratching the USD 65.00/bbl level yesterday, which spoiled the risk sentiment. At the same time, we think that at current levels the fundamental link between RUB and crude oil price actions is relatively weak, given the recent elevated volatility in the Russian FX market. Meanwhile, the USD liquidity deficit issue is still pressing, as yesterday’s one-month FX repo auction saw demand of only USD 113.3mn (all bids were fulfilled at an average rate of 0.74%), which was less than banks borrowed one month ago on 10 November (USD 199.9mn). Hence, as we have suggested, the pricing of the CBR’s FX repo auction was not a constraint, but rather banks’ unwillingness to spare collateral amid potential unfavourable swings with the rouble liquidity. The one-week FX repo auction on Thursday could perhaps see greater demand, yet so far banks have showed little interest in one-week FX resources.
Maxim Korovin, Tatiana Zueva
VTB Capital analyst

ruble, oil

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