Russian Ruble Gains the Most in Emerging Markets as Oil Rebounds

  • Loss for 2016 almost wiped out amid 30% gain in Brent crude
  • Bonds advance, pushing yields to lowest since October 2014

Russia’s ruble rose the most in emerging markets as a surge in the price of oil nearly erased the currency’s losses for 2016.

The ruble advanced 1.7 percent to 73.92 per dollar by 4 p.m. in Moscow, the highest since Jan. 5 on closing basis, and paring the decline this year to 0.8 percent. Crude rose 2.6 percent in London to $36.89 per barrel on Tuesday. Government bonds rose for a fifth day, cutting the yield on five-year notes 12 basis points to 9.62 percent, the lowest since Oct. 2014.

Brent crude, used to price Russia’s main export blend, has gained more than 30 percent since reaching a record low on Jan. 20, helping make the currency the best-performer among 24 emerging-market currencies tracked by Bloomberg since Jan. 21. Negotiations between Russia and Saudi Arabia to freeze output have helped stabilize the market, Sberbank CIB said.

"While there’s skepticism over the relevance of the recent agreement between major oil producers to freeze output, it has provided a foundation from which both oil prices and the ruble have built," Tom Levinson, chief strategist for foreign currency and interest rates at Sberbank CIB in Moscow, said by e-mail.

The ruble has remained closely linked to fluctuations in the price of oil, with the correlation to crude at 0.83 on Monday, close to a record high of 0.86 set in October. Sberbank CIB sees the ruble climbing to 68 against the dollar by the end of the second quarter if oil is "comfortably above" $40, Levinson said. Brent at $30 results in a ruble forecast of 80 per dollar.

China Boost

Oil could get a boost from China’s central bank’s decision to cut the reserve requirement ratio by 0.5 percentage points on Monday, freeing up the amount of cash the nation’s banks can lend in an effort to cushion demand. OPEC production declined last month because of weaker output from Iraq, a Bloomberg survey showed.

The yield on five-year notes declined as the recovery in oil coincided with more active fiscal spending.

"Banks are awash with liquidity, and new risk rules made government bonds more appealing than corporate debt," said Dmitry Postolenko, manager of fixed-income portfolios at Kapital Asset Management in Moscow.

The Finance Ministry on Wednesday will offer 20 billion rubles ($271 million) of floating-rate bonds due January 2025 and 15 billion rubles of fixed-coupon bonds due August 2021. It has already raised almost 140 billion rubles since the beginning of the year in sales of ruble debt as part of a budget target for sales of 250 billion rubles in debt during the first quarter.

The Finance Ministry will probably sell out auctions tomorrow, Postolenko said. "If oil starts retreating to $30 per barrel, a correction is possible. But so far the global conditions are positive."

The Micex Index of stocks rose 0.4 percent to to 1,846.

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