The ruble climbed to its strongest level in three weeks against the dollar as oil prices rose above $90 a barrel and investors sought out riskier investments after the U.S. struck a deal on extending tax cuts.
Russia’s currency surged 1 percent to 30.99 per dollar by the 5 p.m. close of trading today, the strongest since Nov. 15. It was 0.5 percent stronger at 35.7195 against the dollar-euro basket used by the nation’s central bank to manage swings in the currency.
Crude, Russia’s chief export earner, surged above $90 to a 26-month high of $90.76 a barrel today amid speculation a U.S. government report tomorrow will show inventories slid for the first time in three weeks. Copper and gold climbed to all-time highs. The dollar weakened against all but two of the 25 emerging-market currencies tracked by Bloomberg, as President Barack Obama’s concession to sustain lower tax rates for high- earning Americans bolstered appetite for riskier, developing- nation assets.
“People are a little more confident with commodity prices gaining and the oil price above 90,” Benoit Anne, head of global emerging markets strategy at Societe Generale, said by phone from London. “It’s combined with better sentiment on the markets overall and the ruble is taking advantage of that.”
The ruble ended the day little changed at 41.50 per euro, after sliding as much as 0.6 percent earlier in the day. Policy makers have managed the ruble against the basket since 2005 and have been widening the corridor the currency is allowed to trade within versus the mechanism since October in a bid to make it more flexible. The basket rate is calculated by multiplying the dollar-ruble rate by 0.55, the euro-ruble rate by 0.45, then adding them together.
The ruble is likely to trade “bearishly” toward the end of 2010 as banks and companies hunt down dollars and euros to repay debt and fund acquisitions, Anne said.
Russian companies have about $16 billion in foreign debt, including interest-rate payments, due this month, double the $8 billion of redemptions in October and November, according to central bank data. Acquisitions are also driving foreign- currency demand, with state development lender VEB agreeing Dec. 1 to buy 2.7 percent of E.ON AG’s 3.5 percent stake in OAO Gazprom, worth 3.4 billion euros ($4.6 billion), and AFK Sistema announcing Dec. 3 it sold a 27.6 percent stake in developer Sistema-Hals for $70 million.
BNP Paribas SA, France’s largest lender, is also bearish on the ruble for the rest of 2010.
“We stay negative for December given the amount of debt redemption by local corporates,” BNP analysts in London including emerging markets currency strategist Elisabeth Gruie, wrote in a note to clients e-mailed today.
Bank Rossii buys and sells dollars and euros to maintain the corridor and to temper volatility in the currency. Should interventions top $650 million, the corridor is shifted by 5 kopeks, according to First Deputy Chairman Alexei Ulyukayev.
Russia’s international gold and currency reserves declined by $14 billion last month to $483.1 billion, the central bank said today. It’s the largest monthly drop since January 2009 when Bank Rossii tapped the stockpile to temper the ruble’s so- called “gradual devaluation” at the height of the credit crisis.
The central bank sold a net $5.6 billion of dollars and euros in November to shore up the ruble, the biggest monthly amount of sales since January 2009, Bank Rossii data released today showed. Bank Rossii has been selling about $150 million a day in December, according to Denis Korshilov, head of currency trading in Moscow at Citigroup Inc.
Once December’s debt redemption cycle is over, the ruble should appreciate given oil, Russia’s chief export earner, is trading over $90 a barrel, according to ING Groep NV and OAO Gazprombank.
Russia’s currency may strengthen as much as 2 rubles against the basket in the first two to three months of next year, Pavel Pikulev, Gazprombank’s fixed-income strategist, said by e-mail today. “The next trend will be appreciation.”
Stronger oil prices bolster Russia’s current account, which is positive for the ruble, Dmitry Polevoy, Russia and Kazakhstan economist in Moscow for ING, said in a research note e-mailed today. The ruble is “relatively cheap” compared with other commodity-country currencies and will probably gain about 8 percent versus the basket by the middle of next year, he said.
Next year will be a “strong year” for the ruble as the prospect of higher Russian interest rates will make the currency an attractive carry trade, SocGen’s Anne said. In carry trades, investors borrow funds in countries where borrowing costs are low, like the near-zero rates in the U.S. and Japan, and invest where the returns are comparatively higher. Russia left its key refinancing rate at a record low of 7.75 percent last month. Bank Rossii now has a “free hand” to start raising the country’s official borrowing costs to help curb inflation, Ulyukayev said Nov. 29.
Russia’s dollar bonds due 2020 jumped today, pushing the yield down 13 basis points to 4.69 percent, the lowest since Nov. 15. The yield on government ruble bonds maturing 2016 dropped for a sixth straight day, losing 3 basis points to 7.28 percent.
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