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RUB Revels in Risk Premia Unwind, Possibly Supporting CBR's "Gradual" Tightening Promises

RUSSIA
  • USD/RUB opens lower, driving towards the 75.00 handle as positive RUB sentiment picks up on the back of a major de-escalation with Ukraine.
  • The forecasts associated with our base case scenario in the crisis have materialised, with risk premia unwinding substantially and USD/RUB breaking the 77.50-75.50 consolidation range.
  • With the RUB still heavily undervalued vs its peers, markets will likely now eye pre-sanctions/Ukraine levels in the 73.50-75.50 range.
  • However, choppy trading is likely to persist as the unwind resumes and tensions with the West taper off slightly, but still remain strained. Oil markets in the green today, providing additional support to RUB after a series of lower sessions.
  • Focus turns to the CBR today, expected to hike +25bp.
  • Expected firmness in the currency on lower geopolitical risks may provide further support for the CBR sticking with promises for a "gradual" tightening over an accelerated trajectory.
  • However, material risks to a +50bp hike at this meeting remain.
  • 3x6 FRA-Mosprime spreads have narrowed -17bp since Wednesday to +83bp and may continue to do so as RUB strength gains momentum.
  • Markets have mostly priced a +25bp hike, which may see little market impact.
  • However, a surprise +50bp move would likely give RUB a bit of a kick-start.
  • Intraday Sup1 : 74.9221, Sup2: 74.5050, Res1: 75.3055, Res2: 75.7372
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
BulletEM BulletEmerging Market News
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
BulletEM BulletEmerging Market News

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