As stated in our previous post, CBR’s indication of hikes has cushioned ruble depreciation.
Resumption of FX purchases will prove bearish for RUB, in our view. The CBR announced the resumption of FX purchases from January 15th. This is likely to weigh meaningfully on RUB, in our view, with the current account support much smaller.
The ruble rallied through January, and USDRUB briefly fell near the 66 mark last week. But this rally stopped after CBR stepped up FX purchases: from 1 February, CBR will mop up additional 18% dollars from the market than what they have been doing in recent months. This increased rate of purchase will make up for the period August-December 2018 when FX purchases were suspended because the oil price came under pressure; the increased monthly volume will continue for 36 months assuming that calm conditions will prevail.
Over this period, the additional purchases will total $32bn. The volume is not negligible, of course, but in our view, the currency will be more affected by whether or not CBR continues to hike rates this month. Beyond the initial market reaction following the announcement, we do not anticipate the FX purchases to have an effect on USDRUB.
Options Trade Tips (USDRUB): At spot reference: 66.056 levels, we maintain our 3m 1x1 USDRUB (65/71) call spread. We may have been a bit early with this trade as the resumption of purchases was now announced only for January 15th, after the expiry of our option. Yet, amid global EM risks and negative RUB seasonality around the year-end, we still see a good chance RUB will weaken in anticipation of the budget rule headwind within the remaining maturity of the trade. Courtesy: JPM & Commerzbank
Currency Strength Index: FxWirePro's hourly USD is inching at -113 (which is bearish), while articulating (at 13:31 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex


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