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The driving forces that could lead RUB: The import substitution policies in focus: In our view, the Russian import substitution policies are unlikely to be successful. As things stand the agriculture and machinery sectors of the economy make up less than 20% of GDP. Even assuming 10% YoY growth over the coming years for these sectors, it’s hard to see this having a meaningful effect on aggregate GDP growth anytime soon.
Although its future trajectory remains closely intertwined with a still uncertain commodity outlook, we expect global macro risks (Fed, China, RMB) to be less threatening to the ruble’s performance. Indeed, the very recent decoupling between oil and the dollar could be an omen to further upside (or resilience, at the very least) in oil prices, irrespective of the DXY.
Moreover, should Brent hold up well relative to non-oil commodities (notably, industrial metals), the risk of souring sentiment triggered by China’s slowdown might take less of a toll on Russian assets.
Trade recommendation (USDRUB):
At spot ref. 64.1936: we recommend either going long in 1w/2m diagonal USDRUB credit put spread or shorts in near month futures, but the oil and RUB recovery now look too extended for a put position vs. the USD as from current levels we see only contained a further potential for RUB gains.
A 67/64.50 diagonal put spread is likely to fetch for certain yields of the USD notional as it edges above up to higher strikes in next 1 week or so and slides as much as possible up to maturity on longs.
The risk is dubiously unlimited in shorts, the structure should benefit from a further compression in RUB volatility in a bullish scenario.
