- Investors await signals on rates from U.S. Federal Reserve
- Market Vectors Russia ETF had $10 million inflows on March 14
Russia’s ruble declined the most in almost a month as falling oil prices overshadowed optimism that relations with Europe and the U.S. will improve after President Vladimir Putin ordered some forces to withdraw from Syria.
The currency of the world’s biggest energy exporter weakened 1.7 percent to 71.1890 per dollar as of 8:24 p.m. in Moscow, its second straight retreat, trimming its advance in the past month to 8.1 percent. The ruble pared losses late Monday after Putin ordered the “main part” of Russia’s military force to begin to withdraw from Syria, saying it has completed its main objectives. Stocks and bonds also fell.
A month-long rebound in Russian assets is wavering as oil weakens and investors look for hints on the direction of interest rates before Federal Reserve and Bank of Russia policy meetings this week. Banks including Renaissance Capital and Morgan Stanley have warned that bond gains look overdone and investors may be overestimating the Russian central bank’s readiness to return to a rate-cut cycle.
The Syria pullback “will make western leaders look a little less negatively towards Putin,” said Koon Chow, a strategist at Union Bancaire Privee in London. At the same time, “the ruble is likely to slip this week because of the Fed’s likely ‘business as usual’ communication, which will suggest a hike in June and maybe another hike later this year, supporting the dollar generally," he said.
Brent crude fell 2.4 percent to $38.58 per barrel on Tuesday. Oil and natural gas contribute almost half of Russia’s government revenue. The commodity has rebounded from a 12-year low of $27.88 per barrel on Jan. 20.
“Oil continues to play a key role for the ruble,” said Artem Roschin, a currencies dealer at Aljba Alliance bank in Moscow. Roschin said he’s watching the results of the Fed meeting for any impact on oil prices.
“If it falls below $38.50 a barrel, the ruble will weaken by a lot,” he said.
The Finance Ministry will seek to sell 30 billion of bonds on Wednesday, including fixed and floating-rate notes, in its first debt auction since the start of the month, according to a statement on its website. Five-year sovereign bonds declined for a fifth day, lifting the yield seven basis points to the highest level this month at 9.56 percent.
Forward-rate agreements showed derivatives traders are betting on a 74 basis-point rate reduction in the next three months, the biggest wagers so far this year.
Economists don’t see those cuts coming at Friday’s meeting. Of 41 surveyed by Bloomberg, only six expect a 50 basis-point reduction, while the rest expect no change to the key rate, now at 11 percent.
The Micex Index of stocks dropped 0.6 percent to 1,855.06. The Market Vectors Russia ETF, the biggest Russia-focused exchange-traded fund, had $10.28 million inflows on March 14 compared with $43.05 million a week earlier, according to data compiled by Bloomberg.