Ruble bears are paying the price for ignoring mounting signs of an impending rally in the world’s worst-performing currency.
The dollar-ruble rate’s 14-day relative-strength index climbed to 85 yesterday, the highest since Jan. 29, data compiled by Bloomberg show. The currency surged the most in at least 11 years today after the trading indicator had been above the 70 threshold that signals a turnaround for more than a month. The ruble’s stochastic indicator also showed a bullish signal.
Traders are cutting short positions before the Bank of Russia holds an interest-rate meeting tomorrow, according to ZAO Citibank. The ruble is still the third-most oversold currency in emerging markets amid speculation that the central bank will speed through the planned adoption of a free float after spending about $68 billion of its reserves this year to slow the depreciation.
“Today cost the rumor-followers dearly,” Vladimir Miklashevsky, an economist at Danske Bank in Helsinki, said by e-mail. “On one hand, it makes perfect sense to go short ruble on yesterday’s rumors on the free float. On the other hand, it’s dangerous if you think the central bank is capable of a 200 basis-point rate hike.”
Forty percent of fixed-income and rates traders expect Russia’s central bank will increase the key rate by 100 to 150 basis points tomorrow, according to a poll released by brokerage Tradition yesterday. The median estimate of 31 analysts in a Bloomberg survey is for an increase of 50 basis points to 8.5 percent.
The currency strengthened as much as 5.1 percent today, the most on record, to 41.0005, before trading 2.6 percent higher at 42.0915 as of 3:54 p.m. in Moscow. That trimmed its drop since June to 20 percent, still the biggest slump worldwide, as Russian President Vladimir Putin’s standoff with the U.S. and its allies over Ukraine spurred outflows.
“The ruble may be poised to appreciate against the U.S. dollar in coming weeks after the slow-stochastics study, which measure the velocity of a security’s price movement, exhibits a weekly bullish crossover near the oversold threshold,” Sejul Gokal, a Bloomberg technical analyst in London, said by e-mail. “A similar crossover in March this year, led to a 6.2 percent appreciation” over 13 weeks, he said.