The beginning of the session was quite supportive for RUB, which firmed to 65.55 against USD. Trading activity in the first half of the day was subdued, with USDRUB marking at 65.70, as Brent was hovering around USD 48.8/bbl, providing no clear signals regarding the direction of the next move. A storm broke in the evening, when oil lost ground, crashing to below USD 47/bbl. Trading activity immediately revived, and RUB easily surrendered 66.00 against USD amid decent trading. By the close, MICEX turnover totalled USD 5.0bn, while RUB weakened 1.2%, edging down at 66.62 against USD. Brent closed at 47.2/bbl (-3.4%), and now January’s lows of USD 45/bbl look to be very probable, given no improvements in fundamentals. The EM FX universe traded primarily in the red yesterday, with the average index declining 0.7%. TRY lost another 1.0%, refreshing all-time lows, MXN dropped 1.3%, while BRL slipped 0.7% against USD. Meantime, commodity-based currencies remained resilient to oil’s plunge, closing flat to the previous day.
The breaking news this morning is the 23% KZT devaluation following the government’s decision to move to inflation targeting and a free floating exchange rate regime. We highlight that despite gradual widening of the USDKZT policy band this year, KZT still remained overvalued from the balance of payments perspective, trading at historic highs against RUB.