RUB is taking the beating – Rabobank

Piotr Matys, EM FX Strategist at Rabobank, points out that the Russian ruble remains under severe selling pressure extending its already significant losses by more than 4% so far today to the lowest level since December 2016.

Key Quotes

“The sell-off is driven by rising geopolitical tension and rapidly escalating concerns amongst investors that more Russian companies could be targeted by the US. Last Friday the US imposed sanctions against prominent Russian billionaires, who are close to the Putin circle, and their companies. On Monday the MOEX Russia Index plunged 8.3% - the biggest one day fall since the 2014 Crimean crisis.”

“Speaking this morning Bank of Russia Governor Nabiullina acknowledged that the new wave of US sanctions caused the market to fall and increased volatility. She also said that it takes time for the markets and the economy to adjust to those measures. Nabiullina added that the CBR has a wide range of tools to address the risks, but at this stage there is no threat to Russia’s financial stability.”

“Comments from Nabiullina implied that it is probably too early to expect the CBR to intervene to support the ruble, which is helping to absorb shocks. That said, if the sell-off continues to accelerate and the ruble significantly decouples from economic fundamentals and oil prices, the CBR may consider selling hard currencies to slow down the pace of ruble's depreciation. The CBR may also pause its monetary policy easing cycle to maintain an attractive interest rate differential.”

“USD/RUB traded as high as 63.9240 so far today before trimming its impressive gains. Momentum indicators are stretched and we may see a corrective pullback. But, scope for a retracement in USD/RUB is likely to prove limited due to concerns that more Russian companies could become a target of US sanctions. Developments in geopolitics will continue to set the tone for the ruble as well.”

“Looking from the perspective of technical analysis, a close on a weekly basis above the 61 pivot would confirm a bullish breakout from the sideways trend that has been in place since January last year. On our daily chart below we marked key levels to watch.”