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Navalny & Inflation Force RUB Unwind; Sanctions Risks Abound This Week

RUSSIA
  • USD/RUB opens marginally lower, but continues to lag its EM high beta peers due to local political risks surrounding Navalny.
  • The material rebuild in risk premia associated with EU & US sanctions and a spike in inflation eroding carry appeal has forced the recent unwind in RUB long positioning and should continue to keep RUB on the back foot - especially this week, as the EU awaits Navalny's verdict before applying sanctions.
  • Focus will be firmly on tomorrow's trial where Navalny is expected to receive 3.5 years in jail as the base case.
  • A harsher sentence will likely elicit a harsher response from the international community.
  • However, one way Russia may look to temper international condemnation in the near-term is to provide a shorter initial sentence, before escalating it further down the track (6m to 1 yr) on new charges.
  • Sell side still says RUB remains undervalued, and will be a solid play once risk premia and local volatility decline.
  • Sup1: 75.0980, Sup2: 75.9224, Res1: 75.8442, Res2: 76.3870
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com

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