Ruble Tumbles on Crude Drop as Morgan Stanley Sees Rally Waning

The ruble retreated against the basket, paring its weekly gain, after oil dropped and Morgan Stanley recommended selling Russia’s currency as the effects of global stimulus efforts ebb.

The ruble fell 0.5 percent against the central bank’s target dollar-euro basket to 35.3678 and declined 0.5 percent against the dollar to 31.0360 by 7 p.m. in Moscow.

Brent sank 2.8 percent in London to $101.33 per barrel, extending yesterday’s 1.4 percent drop. Oil, which together with natural gas contributes about 50 percent of Russian budget revenue, has fallen 13 percent from a 2013 high on Feb. 14. Russia’s benchmark stock index lost 2.2 percent in the week, the fourth weekly loss in a row.

“First of all, it’s oil,” Andrey Volkov, head of foreign exchange and money markets at ZAO Natixis Bank, said by phone from Moscow. “It’s also the stock market, which has been falling for several days in a row.”

Today’s drop pares the ruble’s weekly gain against the basket to 1.2 percent, the strongest since November and its first since the five days ended March 15. Three days of gains at the beginning of the week were a correction before further declines, Volkov said.

“I think there is more negative for the ruble to come,” Volkov said.

Stimulus Waning

The ruble is overvalued and should be sold if it strengthens, James Lord, emerging-markets strategist at Morgan Stanley, wrote in a note to clients.

Bank of Japan’s unprecedented monetary stimulus, which stoked investor appetite for riskier assets, is waning, while mid-terms risks are increasing after Russia’s Finance Ministry said it might start foreign currency purchases on the open market for its Reserve Fund as soon as in the third quarter, according to Lord.

“We are increasingly of the view that the correct trading strategy for the ruble is now to sell on rallies,” Lord said.

Bank of Japan said it will buy 7.5 trillion yen ($75 billion) of bonds a month on April 4. The U.S. Federal Open Market Committee, led by Chairman Ben S. Bernanke, is continuing with $85 billion in monthly bond purchases until the labor-market outlook has “improved substantially.”

The yield on Russian benchmark OFZ bonds due February 2027 rose seven basis points, or 0.07 percentage point, to 7.07 percent.

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