FxWirePro: Snippets of BRICS FX intricacies and trade tips

RUB: The Russian FX markets were surprised by the central bank of Russia (CBR), CBR hikes its policy rate by 25bps., whereas the market consensus had anticipated status quo, but the probability of rate hikes in coming months was not entirely unknown. CB chief Elvira Nabiullina had herself hinted at this last week. What was missing was any specific trigger to take a more cautious view right now. Nevertheless, CBR chose to be pre-emptive and to build headroom for risk in case the US goes ahead and imposes harsh sanctions. In most moderate scenarios, such a pro- active monetary stance should prove supportive of the ruble. 

Trade tips: 2m USDRUB 1x1 put
spread (68.7844/64.4171), spot reference: 68.082 levels.

ZAR: Moody’s took the wind out of speculation about an imminent rating downgrade. Even though the review of the country ratings in not due until 12thOctober Moody’s South Africa head analyst pointed out in an interview that nothing has changed about the rating agency’s evaluation and that at present no rating change was planned. Moody`s is the last of the three major rating agencies that is still awarding the country an investment grade rating. So at least one worry less for ZAR. Moreover, the currency has been able to benefit from the TRY appreciation. However, there are still quite a few things to sort out at the Cape. The rand will remain susceptible both to external risks (renewed risk-off sentiment) and to country-specific factors. As regards the central bank’s future approach the inflation data due on Wednesday and the SARB’s monetary policy statement on Thursday (with a press conference) will be of particular interest. It is therefore quite possible that this week might turn into an interesting one for ZAR. 

Trade tips: 06-Dec-18 USDZAR call options (14.50) were advocated in our previous post at spot reference: 14.9414 levels.

CNY: The trade topic remains the dominant theme for CNY over the coming week. President Trump is likely to proceed with the tariffs on additional $200bn of China’s exports to the US, and the decision could be made as soon as today. In the meantime, China is reportedly considering declining the trade talk invitation from the US which was scheduled to start on 20 September. Clearly, the market is somewhat disappointed by the recent developments, with risk aversion sentiment emerging. However, we also know that there are too may “unknown unknowns” on trade issues. All told, while there is little risk of a blow-up in CNY especially after China has re-introduced the so called “counter-cyclical factor” (today’s CNY fixing also came in stronger than expected), the market still has to prepare for more volatility ahead. Courtesy: Commerzbank

Currency Strength Index: FxWirePro's hourly USD spot index is flashing at -129 (which is bearish), while hourly CNY spot index was at 106 (bullish) at 13:26 GMT. For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex