Yesterday, the CBR announced that it had suspended FX purchases due to increased volatility on the domestic market. Although, in absolute values, USD 200mn of purchases is small relative to the daily market turnover (USD 5.6bn yesterday), in terms of sentiment the decision provided a firm foothold for RUB, which strengthened to 59.50 against USD in the morning as soon as the news hit the wire.
In early June, the CBR halted its FX purchases for a few days, when the magnitude of the daily price moves in USDRUB exceeded 3.0% for a couple of days in a row. This time, daily swings in RUB picked up close to 2.0%, especially taking intraday volatility into the account. Obviously, two episodes are not enough to draw any conclusions regarding the CBR’s reaction function to market volatility, and we think that the regulator does not follow a kind of rule-based approach, but rather acts on an ad hoc basis. Meanwhile, we think that the CBR’s medium-term target of USD 500bn for international reserves remains intact.
During the rest of the day, RUB continued trading on a stronger footing as crude oil looked to be bottoming out. In the end, Brent closed 0.2% at USD 53.4/bbl, which helped RUB to close at 58.68 (+2.3%) against US. The EM FX index rose 0.1% yesterday, but performances were mixed. Specifically, BRL increased 0.7%, MXN and ZAR added 0.4%, while THB fell 0.4%, accompanied by TRY and SGD, which weakened 0.2-0.4%. After a couple strong sessions, commodity-based currencies finally surrendered: AUD declined 0.6% and NZD closed 0.4% in the red.
The FOMC statement sprang few surprises. Its assessment of the economy remains cautiously upbeat and seems more positive about the improvement in the US labour market. There was little reference to the decline in energy prices, but the FOMC still expects inflation to return to the 2% target. As long as there are no market accidents in the short term and the non-farm payroll report on 7 August does not surprise to the downside, then the 17 September FOMC meeting remains in play for the first hike in the target range for the fed funds rate, in our view.