Ruble Whipsaws Top Forecasters as Worst Currency Becomes Best

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For one of the toughest jobs in financial markets, try predicting the ruble.

As Russia’s currency went from the world’s worst performer to the best in the first three months of this year, it caught out even the most accurate forecasters. Oil’s drop to near a six-year low and cuts in interest rates, previous indicators of a weakening ruble, were swept aside as the cease-fire in Ukraine became the bigger determinant.

“None of my expectations regarding the ruble came true,” Evgeny Shilenkov, the head of trading at Veles Capital LLC in Moscow, said by phone on Thursday. Shilenkov had forecast the ruble would weaken as much as 3.6 percent in the quarter. “This is our new reality -- there are too many different factors affecting the ruble, there are too many elements in the ruble matrix. The ruble is completely unpredictable.”

Investors should stay focused on eastern Ukraine to gauge the ruble’s direction, said Simon Quijano-Evans, the head of emerging-market research at Commerzbank AG in London, whose forecasts in the past four quarters came the closest to matching the market moves. He predicts a 3.9 percent advance in the ruble this quarter and gains for domestic bonds, based on a prolonged cease-fire averting the prospect of tougher Western sanctions and crude avoiding a further slump.

Swings in the ruble underline the difficulty for analysts. One-month implied volatility for the currency was the highest in the world at the end of the quarter, raising the cost of hedging and making moves harder to predict. The ruble slumped 46 percent last year, the most among 31 major currencies tracked by Bloomberg.

‘Unenviable’

“Currency forecasting is, in principle, an unenviable task,” said Ivan Tchakarov, a Moscow-based economist at Citigroup Inc., the second-most accurate ruble forecaster by Bloomberg data. Tchakarov had predicted the ruble weakening in the first quarter. “It becomes even more difficult during times of excessive market turbulence, which was the case in Russia over the last couple of months,” he said by e-mail Thursday.

The ruble rallied 4.4 percent in the first quarter, even as the Bank of Russia cut its benchmark borrowing rate a total of 300 basis points and Brent crude traded at an average of $55.17 a barrel, 29 percent lower than in the previous three months. The ruble advanced for a fourth day, adding 1.8 percent to 55.6060 versus the dollar as of 5:24 p.m. in Moscow on Monday.

Complex Interplay

The gains of the first quarter will likely continue in the second, according to Tatiana Orlova, chief Russia economist at Royal Bank of Scotland Group Plc in London. Russian companies will need to buy fewer dollars because foreign-debt payments will be 42 percent less than in January through March, she said.

The currency will strengthen 5.1 percent to 55.4 against the dollar by the end of June, Orlova predicts. RBS was the sixth-most accurate forecaster for the ruble, the Bloomberg survey showed.

Tchakarov disagrees, and bases his forecast on declining oil prices. He sees the ruble slumping 13 percent in the second quarter to 67 versus the dollar as Citigroup predicts the glut in crude reaching a peak and prices dropping to $40 per barrel.

Oil in New York closed last week at $49.14 per barrel and is down 7.8 percent this year. Brent, the benchmark used to price Russia’s main export blend, has fallen 4.2 percent in the period to $54.95.

The ruble is also subject to changes in the economy and developments in Ukraine.

While analysts predict the economy will contract 2.8 percent in the first quarter, it unexpectedly grew 0.4 percent in the fourth. Even as the February cease-fire between pro-Russian rebels and Ukraine government troops eased concern sanctions will be tightened, the sides continue to swap blame for frequent violations.

“It is the multitude and complex interplay of different factors driving the ruble exchange rate that made forecasting it so difficult,” RBS’s Orlova said.

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