- Relationship that sank ruble could now turn to its benefit
- Correlation to oil seen overshadowing recession and inflation
The ruble headed higher with oil as Deutsche Bank AG predicted closer links between the two assets will benefit Russia’s currency amid a “moderate” rebound in crude.
Russia’s currency is more closely tied to crude prices than at almost any time this year, which means the ruble may gain as oil prices recover to $53 per barrel in the fourth quarter, according to Deutsche Bank. Battered by sanctions over Ukraine and oil’s slump amid a slowdown in demand from China, the economy of the world’s biggest energy exporter is headed for its deepest contraction since 2009.
The ruble rose 0.4 percent against the dollar to 66.23 at 6:34 p.m. in Moscow, while the yield on five-year government bonds fell nine basis points to 11.43 percent.
Crude oil jumped 1.6 percent to $48.23 per barrel in London trading, 13 percent above this year’s low. The ruble has plunged more than 50 percent since the start of 2014, the steepest decline since the 1998 economic crisis.
The 30-day correlation between the two assets is about 0.85, near the strongest all year, and compares to 0.5 at the start of 2015. At a reading of 1 they would move in lockstep.
Oil Obscures View
Currency traders are relying more on oil to gauge the ruble’s value “as the domestic economy remains weak, inflation is high and growth is hampered by economic sanctions,” Deutsche Bank analysts Gautam Kalani and Christian Wietoska said in a note to clients. "In this environment it is difficult to take a directional view on the ruble without taking a strong view on crude."
The Micex index of stocks fell 0.6 percent to 1,700.11, the third day of declines. Lukoil PJSC and OAO Rosneft led declines on speculation the government may raise taxes on crude to plug a budget shortfall. The plunge in oil forced the government to put larger spending cuts on the table in next year’s budget as accumulated wealth funds may be exhausted in less than two years.