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USD/RUB Holds Its Ground After Western Sanctions, Focus Remains on LPR/DPR Boundaries

RUSSIA
  • USD/RUB trades +0.25% higher this morning, treading water following Western sanctions yesterday, which mostly fell short of making a meaningful impact as they keep their powder dry in case of a further invasion of Ukraine.
  • Uncertainty emerged over Russia’s classification of recognised borders for LPR/DPR territories, which could lead to clashes with Ukrainian troops if these areas extend to ground occupied by Ukrainian forces, such as Mariupol.
  • The cancellation of Biden & Blinken’s meetings with Putin & Lavrov closes to door to negotiation and will not please Putin – creating scope for greater brinkmanship/escalation after Putin expressly called for its security demands to be met yesterday.
  • Russia seems less concerned with sanctions and more about gaining US/NATO concessions at this stage and has voiced its willingness for conflict to re-define Europe’s security architecture.
  • Focus remains on Russia’s definition of the LPR/DPR territories for whether the conflict dissolves into war, but increased shelling has already been noted in the Donbas and is no longer considered a ceasefire violation as the Minsk agreements have been scrapped.
  • RUB gained yesterday as Western sanctions fell short of the mark, but will likely suffer renewed weakness if direct Russia/Ukraine military conflict erupts.
  • Russian buffers against sanctions have helped cushion the impact of sanctions due to its high international reserves, low foreign ownership of OFZs, wide current account surplus, strong fiscal/external balances, high nominal rates and low holdings of USD debt – underpinning its strong macro fundamentals, which no doubt would have made part of Putin’s calculus.
  • Further signs of less effective sanctions will support RUB at these valuations, while shifts towards more aggressive measures like SWIFT and the energy-sector will be RUB negative.
  • Intraday Sup1: 77.9248, Sup2: 77.4994, Res1: 79.4922, Res2: 80.963
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
BulletEM BulletEmerging Market NewsHomepage
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
BulletEM BulletEmerging Market NewsHomepage

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