Ruble Rises to Two-Month High as Oil Rally Adds to Fed Optimism

Updated on
  • Central bank to resume FX purchases after RUB at 60: Rabobank
  • Ruble is on track for best rally in emerging markets this week

Russia’s ruble headed for the strongest level since July amid optimism that recovering oil prices will boost the government’s revenues and help the economy climb out of a recession.

Investors awaited the minutes of the Federal Open Market Committee’s policy meeting Sept 16-17, due 9 p.m. Moscow time, to gauge the extent of support that a low-rate environment in the U.S. will bring to crude prices and the ruble. If the currency continues to strengthen, Russian authorities will act to protect the nation’s export competitiveness, Alexei Egorov, an analyst at PAO Promsvyazbank in Moscow.

“If oil rallies following today’s Federal Reserve minutes release, the ruble might strengthen past 60 and the central bank will come out with dollar purchases,” Egorov said by phone. “Even if oil continues rising, the central bank won’t want the ruble to over-strengthen in case oil drops later on.”

Rallying crude oil has lifted Russian assets amid gains in emerging-market currencies, bonds and stocks that have been spurred by expectations for lower U.S. interest rates for longer. The Bank of Russia, which last year allowed the ruble to trade freely, bought dollars between May and July to stem the ruble’s rally that had become the best performance in emerging-market currencies.

The ruble gained 1.1 percent to 61.956 versus the dollar as of 7:10 p.m. in Moscow, strengthening for a fourth day, its longest streak in almost four months. The currency is on track for a 6.5 percent increase this week, that would be the biggest in 2015.

Lower Probability

Brent crude climbed 2.1 percent to $52.39 per barrel. Oil and natural gas account for half of Russia’s budget revenue. Traders pushed out expectations for the first U.S. rate increase, with Fed-funds futures showing an 8 percent probability of a boost in October, down from about 40 percent a month ago.

In the short-term, the ruble may extend its gains to around 58.50 to 59.25 against the dollar if Brent crude stays above $50 a barrel, Piotr Matys, astrategist at Rabobank in London, said by e-mail.

“We retain, however, our bearish mid-term view on the ruble as it is difficult to expect that the rebound in oil prices will extend significantly in the coming months at the time when the outlook for the global economy is far from positive and we are likely to hear more negative news from China,” Matys said.

He, too, said the central bank may resume dollar purchases if the ruble rallies past 60 to 58 against the dollar in the coming days. Five-year government bonds fell for the first time in four days, sending the yield three basis points up to 10.68 percent.

The Micex Index of stocks added 0.6 percent. Sberbank PJSC advanced 4.3 percent as BCS Financial Group raised its recommendation to buy from hold. VTB Group gained 3.6 percent.

Aeroflot PJSC climbed 2 percent, its eighth day of increases. Flights from Russia to cities including New York will cost 25 percent more following the collapse of Transaero Airlines, according to search engine Aviasales.ru.

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