The ruble rose to its strongest level in two weeks against the central bank’s dollar-euro basket as oil prices nearing $90 a barrel and easing U.S. monetary policy buoys demand for Russian assets.
The currency gained as much as 1 percent to 42.15 per euro today, the strongest since Oct. 27, and was little changed 30.6625 per dollar by 11:59 a.m. in Moscow. Those movements left it stronger for the fourth straight trading day versus the basket, adding 0.4 percent to 35.9087 against the mechanism used by the central bank to temper swings in the currency that erode exporter competitiveness.
Crude hit a more than two-year high of $87.63 a barrel yesterday as the Federal Reserve’s plan to buy an additional $600 billion of Treasuries, a tactic known as quantitative easing, boosted expectations of a weaker dollar and increased demand for commodities. With the Fed’s benchmark interest rate near zero and the bond purchases aimed at reducing market rates, investors are seeking out emerging markets like Russia, whose official interest rate on one-day repurchase loans is 5 percent.
“The fundamentals suggest that the ruble should be stronger,” Yaroslav Lissovolik, Moscow-based chief economist for Deutsche Bank AG, the world’s largest currency trader, said by phone today. “With the oil price approaching $90 and a better global outlook more people are starting to rethink their views on the ruble.”
Russia’s currency slumped 1 percent against the dollar and 2.7 percent versus the euro last month, the worst emerging market performer against both the greenback and the euro after Chile and Colombia’s pesos, according to data compiled by Bloomberg. A narrowing of Russia’s trade surplus in August and changes to Bank Rossii’s management of the ruble deterred investors in the currency, according to Lissovolik.
“What we’re seeing now is some reversal of the anomalies the ruble has been experiencing,” said Lissovolik, who predicts the ruble will end the year at 29.7 per dollar and strengthen to 28.4 versus the U.S. currency by the end of 2011.
Since the Fed’s Nov. 3 announcement, the ruble has jumped 2.1 percent against the euro and just 0.2 percent versus the dollar. The currency’s movements are more pronounced against the euro because the central bank is confining the ruble to a 30 to 31 per dollar range in a bid to limit appreciation on the back of quantitative easing, said Vladimir Tikhomirov, chief economist at Moscow-based Otkritie Financial Corp.
Bank Rossii is “afraid the new stage of quantitative easing will lead to a weaker dollar and a weaker dollar hurts Russian competitiveness,” Tikhomirov said by phone. “They’re preempting that strength by keeping the ruble steady versus the dollar.”
The central bank manages the ruble by buying and selling dollars and euros on the market. Policy makers sold $3.8 billion of foreign currency in October, the most since January 2009 when Bank Rossii engineered what it called a “gradual devaluation” of the ruble amid the global credit crisis, central bank data shows. The ruble hasn’t traded beyond 30 to 31 against the dollar since Oct. 11, when it strengthened to 29.76.
Options traders are bullish on the ruble, with the currency’s one-week risk reversal rate -- the premium of put options over calls -- at 0.5 percent since Oct. 22, from as high as 1.5 percent on Oct. 19, according to data compiled by Bloomberg. Non-deliverable forwards, known as NDFs, which provide a guide to expectations of currency movements and interest-rate differentials, show the ruble at 30.8930 in three months, from 31.0466 yesterday.
Russia’s dollar bonds due 2020 fell, pushing the yield up 7 basis points to 4.26 percent, the highest since Nov. 2.