On Friday, the Russian FX market did not find any support. In the morning, RUB surrendered the 60.25 level against USD, in anticipation of the CBR’s BoD decision. After the announcement of a 50bp cut, RUB slipped to 61.10 vs. USD for a while, but quickly returned to the initial position. However, at this time, the crude market came to the forefront, with Brent plunging to USD 52.2/bbl (-2.1%) by the end of the session. Hence, the pressure on RUB resumed, pushing it down to 61.71 (-3.1%) against USD by the close. The EM markets traded mixed on Friday. Specifically, MXN hiked 1.0%, followed by TRY and THB, which gained 0.4%. At the same time, BRL dropped 1.5% and IDR weakened 0.6%. Commodity-based currencies demonstrated remarkable resilience to the slump in oil prices: AUD firmed 0.2%, while NOK and NZD slid a moderate 0.1-0.2%.
The CBR’s decision did not bring any surprises, and came in line with the market consensus and our projections. Given the relatively moderate size of the cut, RUB’s knee-jerk reaction was sentiment-driven, in our view. We believe that the monetary easing cycle will continue further this year, but at slower pace, thus retaining a high carry in RUB. Therefore the key factors shaping the Russian FX market in the medium term are set to be oil, external redemptions and the timing of the Fed’s move. Specifically, we think that RUB’s performance now assumes a further downward correction of Brent crude oil to USD 50/bbl.