Ruble Ends Three-Day Rally as Oil Retreats Before Doha Meeting

  • Pimco buys ruble on ‘cheap’ valuations amid oil's 2016 rally
  • Russia's Finance Ministry sells 27 billion rubles of bonds

Russia’s ruble fell, erasing earlier gains as oil weakened following data showing the market remains oversupplied and investors speculated about whether a weekend meeting between producers will lead to an agreement to freeze output.

The currency weakened 0.6 percent to 66.1246 against the dollar by 7:33 p.m. in Moscow, after rising as much as 0.7 percent earlier. Brent crude was 0.9 percent lower at $44.30 a barrel following a 4.3 percent rally on Tuesday that was spurred by an Interfax report suggesting that Saudi Arabia and Russia had reached a consensus on whether to freeze production.

The ruble is the second-best performer among emerging-market peers this year as the rebound in Russia’s main export earner encouraged investors including Pacific Investment Management Co. to buy the currency. Crude and natural gas account for almost half Russia’s budget revenue and traders are waiting for any signs that oil-producing nations will freeze supplies at meetings in Doha on Sunday.

“We could witness a classic ‘buy the rumor, sell the fact’ reaction if the meeting in Doha indeed ends with some agreement between major oil producers,” said Piotr Matys, an emerging-markets currencies strategist at Rabobank in London, by e-mail. “Oil prices could fall on the back of profit taking as the rally is starting to look somewhat stretched, which in turn would prevent" further gains in the ruble against the dollar.

Downside Risks

Matys said he’s concerned the oil rally has gone too far and the ruble’s potential for further gains is limited. Sberbank CIB analysts said Brent could fall to $35 a barrel or lower should the Doha talks fail, which would drive the ruble toward 75. The ruble should trade at 65 with Brent at $45 per barrel, Sberbank said.

The Russian currency’s 14-day relative strength index climbed to 68 on Tuesday, approaching the level of 70, which to some analysts signals the security is overbought and may retreat. The gauge was at 66 today.

Iran’s oil minister won’t attend the gathering of producers in Doha on April 17 and will instead send a representative, Seda reporter Reza Zandi said in a Twitter posting. Kremlin press secretary Dmitry Peskov said he still hoped for a deal to cap production regardless of Iran’s position, following a conversation between the Russian Energy Minister Alexander Novak and his Saudi counterparts.

Pacific Investment Management Co. has recently stepped up exposure to the ruble and other commodity currencies, citing “cheap” valuations after the biggest jump in crude prices in almost a year.

“We can find value and yields in emerging markets as valuations are cheap,” Geraldine Sundstrom, Pimco’s co-head of asset allocation, said in an interview in London. Pimco is also buying emerging-market stocks, she said.

The Micex Index climbed 1.8 percent to 1,932.80, closing at the highest level since May 2008 as energy producers Gazprom PJSC and Lukoil PJSC advanced more than 1.5 percent.

Five-year government bonds retreated, pushing up the yield one basis point to 9.32 percent. The Finance Ministry sold all 20 billion rubles ($306 million) of local currency notes due August 2021 in an auction today and 7.04 billion rubles of Ruonia floating rate debt due January 2020.

Before it's here, it's on the Bloomberg Terminal.