- Currency is second-best performer among peers this year
- SocGen sees resistance to gains building in 65-67 range
The ruble retreated with crude as the currency’s correlation with the price of Russia’s main export earner approached a record.
The currency was 0.1 percent weaker at 68.4900 per dollar by 6:11 p.m. in Moscow, erasing a gain of as much as 1.3 percent earlier. The 90-day correlation between the ruble and oil was at 0.81 on Monday. A reading of 1 means the two assets move in lockstep.
Even after flipping to a loss on Monday, the ruble is still the best performer in emerging markets this year behind Brazil’s real. The currency has rebounded with crude prices that are up almost 50 percent from their January low. Brent, the benchmark used to price the nation’s main export oil blend, declined for a third day, losing 1.5 percent to $39.85 per barrel.
"It all depends on oil," Dmitry Polevoy, chief economist for Russia at ING Groep NV in Moscow, said by e-mail. "At the current oil price the ruble’s upside looks limited."
Should the rally resume, Societe Generale SA says the central bank will sell rubles to curb gains that could curtail government revenue from dollar-denominated exports.
“Tactically it makes sense to buy the dollar at these levels, because the risk of the central bank intervening is increasing,” Evgeny Koshelev, an analyst at SocGen’s Rosbank PJSC unit in Moscow, said by e-mail. “It looks like the upside is limited. Resistance to further strengthening from the domestic market will rise in the range of 65 to 67 per dollar.”
The Bank of Russia last stepped into the foreign-currency market when the ruble strengthened past 50 in May. It purchased dollars to replenish international reserves that were depleted in 2014 as the country burned through $90 billion to defend the ruble amid the conflict in Ukraine and sliding oil prices.
The central bank then halted the purchases in July as the currency weakened toward 60 against the dollar. The monetary authority’s goal is to increase reserves to $500 billion in the long term from current levels of $387 billion.
The Micex Index of equities also declined on Monday, losing 0.9 percent to 1,849.12. Five-year local-currency bonds climbed for a second day, reducing the yield two basis points to 9.28 percent.
"For the regulator, the most important is to minimize volatility," Koshelev said. "If the ruble strengthening is not supported by a move in oil, it will be more interested in refilling the reserves."