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USDRUB is advancing above 57 marks as the spot met dip buyers following the improved tone in the greenback plus the persistent weakness in crude oil prices.
In fact, RUB sold off as the barrel of Brent crude is testing the key 200-day SMA around $51.30, down nearly 10% since April’s tops near $56.60 and retreating for the second consecutive week to fresh 4-week lows.
Last week proved generally benign for risk assets, first and foremost, thanks to temporary abatement of political risks as E.Macron now looks in pole position to seal the French presidency post following the second round of elections on 7 May.
Meanwhile, the CBR went for a bullish and pretty surprising decision to accelerate key rate cuts, delivering a -50bp move at the MPC meeting last Friday. Naturally, this development was also welcomed by Russian Govies, as the fixed-rate curve went down by 7- 20bp on the week.
In Russia, FX reserves held by the CBR increased to $400.0 billion during last week, up from $398.4 billion.
The Central Bank of Russia has lowered its benchmark one-week repo rate by 50 bps to 9.25 pct on April 28th, while markets expected 25 bps rate cut. Policymakers signaled the possibility of further cuts in the second and third quarters this year, as inflation continued to decline and is projected to reach 4 pct target before the end of 2017. While Forex reserves in Russia increased to 397907 USD Million in March from 397334 USD Million in February of 2017.
In this environment, dynamics of the Russian FX may prove a rare pain in the neck for investors in Russian sovereign local debt.
Last Wednesday, V.Putin commented on the government monitoring ‘market-based measures’ to affect the valuation of the ruble.
Russia’s president is a rare source of verbal interventions, and deserving of attention from participants of the Russian FX market, as USDRUB quickly moved towards the 57 handle.
The obvious drawback of the approach is that it unfairly penalizes currencies with one-way appreciation trends this year (USDINR, USDMXN, USDRUB) that do not possess much value/retracement room.
Trade tips:
Two important trades are advocated as the CBR commences FX Interventions:
Pay 1-year xccy swap, and initiate longs in USDRUB or buy 1x1 2w/2m USDRUB call spreads (58.50/55.50).
