Russia's Ruble Extends Biggest Monthly Gain as Crude Advances

  • Bank of Russia could send dovish message on rates: Rabobank
  • Currency's rally may continue until Fed meets: Union Bancaire

Crude Oil Inventories Rise by 3.88 Million Barrels

Russia’s ruble rose with oil, extending the biggest monthly gain in global markets and boosting speculation the Bank of Russia will resume cutting interest rates.

The currency added 0.5 percent to 71.12 against the dollar by 8:30 p.m. in Moscow, taking its appreciation in the past month to 12 percent. Brent oil, the blend used to price Russia’s main export variety, climbed 3 percent on Wednesday to $40.88 a barrel, heading for the highest close since Dec. 4.

Oil’s slump to a 13-year low in January and subsequent rebound have whipsawed the ruble, driving its correlation with crude toward the highest on record. Six-month forward-rate agreements show the market is expecting the Bank of Russia to cut its key rate of 11 percent by more than 100 basis points compared with 70 basis points two weeks ago.

“It’s all about oil for the ruble,” said Piotr Matys, a strategist for emerging-market currencies at Rabobank in London. Matys expects policymakers to send a dovish message about rates at its next meeting on March 18 after having left borrowing costs unchanged since July. The central bank has said it will restart easing if price growth slows in line with its forecast and inflation risks recede.

ECB Stimulus

Investors in emerging markets are also looking to Thursday’s European Central Bank policy update and next week’s Federal Reserve gathering for indications of the trajectory of interest rates and potential for further stimulus. The ruble could extend its gains against the dollar beyond 70 if investors are “satisfied” with any plan ECB President Mario Draghi reveals, Matys said.

“The strengthening can continue because global investors have become less pessimistic on global growth, because of the expectations of concerted stimulus policy in the Euro area, China and Japan,” said Koon Chow, a strategist at Union Bancaire Privee in London. “This, together with expectations of an oil supply adjustment have helped push up commodity prices and commodity-related currencies such as the ruble."

At the same time, Chow sees the ruble weakening to 75 by the end of March because he expects the Federal Reserve’s March 16 policy meeting will signal further rates increases, which would then weigh on emerging-market currencies.

“March should be generally still good for the ruble, although most of the move is done now,” said Dmitri Petrov, a London-based analyst at Nomura, whose team’s predictions for the ruble were the most accurate in 2015. “One concern is that oil may have moved a bit too fast, so correction could cause a bit of volatility. I would say we will probably trade around where we are now, maybe somewhat lower." He expects the ruble to be at 71.6 against the dollar at the end of March.

Government bonds declined, pushing the yield on five-year debt up two basis points to 9.36 percent, close to the lowest in 18 months. The Micex index of shares fell 1.5 percent as Lukoil PJSC dropped as much as 3 percent and Gazprom PJSC fell 1.8 percent. Markets were closed on Tuesday for International Women’s Day.

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