Goldman Sachs: Political Risk Premium Has Risen Again

Goldman Sachs note that "since mid-March, when USD/RUB briefly dipped below RUB73, the Ruble has weakened by about 4% versus the Dollar. Some of this recent weakness is attributable to late March volatility in oil prices; here, our commodity strategists are relatively sanguine, suggesting that the reflationary oil tailwinds that have supported the Ruble through much of 2021Q1 can return in Q2. A potentially thornier issue, however, are increasing geopolitical tensions between the U.S. and Russia, which have dominated investor conversations. The significant risk premium already priced into the Ruble since 2020Q3 may, to an extent, moderate the FX response to a further escalation in U.S.-Russia tensions and, over the medium- and longer-runs, concrete policy actions around U.S.-Russia tensions appear, in our view, to be trending in a direction that is less capital market- (and, potentially, less Ruble-) intensive than investors may remember from the 2010s. Still, fresh risks of concrete actions in recent days mean the risk premium in RUB may take longer to compress and may even rise locally if there are more headlines in coming days. So, while we continue to recommend USD/RUB shorts (as part of a broader USD short basket in against EM crosses), the path stronger may remain quite volatile."