Ruble Depreciates to One-Week Low as Traders Flee Moscow's Heat Wave, Smog

The ruble depreciated to its weakest level in a week against the dollar amid speculation Moscow’s heat wave and wildfire-induced smog is forcing traders and investors to reduce their bets and leave the city.

Russia’s currency slid as much as 0.5 percent to 30.0549 per dollar, the weakest level since Aug. 2, according to Bloomberg data. The yield on dollar bonds due 2020 were little changed at 4.61 percent, the lowest since they went on sale in April.

The nation’s worst heat wave on record has led to fewer fixed-income trades, according to Moscow investment bank IFC Metropol. Trading on the Micex stock index dropped to 21.6 billion rubles on Aug. 6, from 68.4 billion rubles on the same date last year, Bloomberg data show. Smog from wildfires in the city’s surrounding regions have almost doubled Moscow’s normal death rate.

“Traders are going out of the country and are closing their ruble long positions before they get out,” said Denis Korshilov, head of foreign-exchange trading in Moscow at Citigroup Inc. “There’s very low liquidity and volumes on the market.”

The heat has spurred the worst drought in five decades and prompted Prime Minister Vladimir Putin to declare a state of emergency in 28 Russian regions. Banks such as Deutsche Bank AG have sent home non-essential staff and advised others to work from home via remote connections.

The ruble was 0.4 percent weaker at 30.0173 per dollar by 3:42 p.m. in Moscow, and gained 0.4 percent to 39.4800 per euro.

Diminishing Opportunities

Russia’s central bank has also reduced its purchases of foreign currency, diminishing opportunities for banks and exporters to exchange dollars and euros, Korshilov said. When the ruble strengthens to around 34.30 versus Bank Rossii’s target dollar-euro basket, the bank cut its purchases, he said. The central bank doesn’t comment on its day-to-day activities in the currency markets.

Bank Rossii confines the ruble to a so-called floating corridor of 33.40 to 36.40 versus the basket by buying and selling foreign currency, First Deputy Chairman Alexei Ulyukayev said June 29. The basket -- which is calculated by multiplying the ruble’s rate to the dollar by 0.55, the euro to ruble rate by 0.45, then adding them together -- is used to limit currency swings that hurt exporters.

The ruble was little changed at 34.2726 versus the basket.

‘Close to Zero’

The central bank bought $464.3 million and 29.3 million euros ($38.5 million) in July, the smallest currency intervention since August 2009, according to data released by the bank yesterday. Interventions have been “close to zero” in August because of reduced trading during the vacation period, said Alexei Moisseev, chief economist and head of fixed-income research at Renaissance Capital in Moscow.

The declining price of oil, Russia’s biggest export earner, also contributed to the ruble’s weakness versus the dollar today, Citigroup’s Korshilov said. Crude slumped as much as 1.9 percent to $79.97 a barrel in New York trading.

Investors increased bets that the ruble will weaken, with non-deliverable forwards showing the currency at 30.2255 per dollar in three months, from 29.9338 a week ago. The contracts, known as NDFs, are a way of gauging market expectations of a currency’s movements as they allow companies to hedge against possible fluctuations in an exchange rate and foreign investors to speculate on currencies in countries that limit their participation in the markets.

Quickening inflation could force Russia’s central bank to allow the ruble to strengthen beyond the floating basket corridor, thereby reducing prices on imported goods, Dmitry Polevoy, an economist for ING Groep NV, wrote in an e-mailed research report dated yesterday. The bank raised its inflation forecast to 8.5 percent from 6.8 percent and reiterated its projection for a 10 percent appreciation in the ruble versus the basket.

Russian inflation was a record low 5.5 percent last month, according to government data.

To contact the reporter on this story: Emma O’Brien in London at eobrien6@bloomberg.net

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