Ruble Volatility Comes Back Under Threat of U.S. Rate Divergence

  • Expected price swings climb from lowest since Oct. 2014
  • As Fed rate hike odds grow, Russia seen cutting its benchmark

Federal Reserve Waiting Game Creeps Into FX Market

Expected price swings in the ruble rose the most since June as currency stability became less certain amid speculation the Federal Reserve is ready to increase interest rates and Russia’s central bank to cut its benchmark.

A gauge of volatility showed traders expect the ruble to move at an annualized pace of 14.15 percent over the next month, up from 12.66 percent, the lowest since October 2014, on Monday. The currency strengthened 0.4 percent to 64.56 per dollar by 4:31 p.m. in Moscow.

Russia’s rate setters are seen diverging from U.S. peers, eroding a buttress of support that had lured carry traders to one of the world’s highest rate regimes using borrowed dollars to buy rubles. Forward-rate agreements signaled 63 basis points of reductions to the Russian benchmark in the next three months, the most since Aug. 11.

Wyoming Portents

Indications by Fed Chair Janet Yellen that a rebounding U.S. economy warrants a rate increase when she speaks Friday at an annual symposium in Jackson Hole, Wyoming "would squeeze" the ruble, said Piotr Matys, an analyst at Rabobank.

The Bank of Russia will meet on interest rates at Sept. 16, while Fed counterparts convene on Sept. 21. Derivatives show odds are 51 percent the Fed will increase rates this year compared with 45 percent a week ago. The chance it will make the move next month is 24 percent.

Hawkish leanings by the U.S. central bank would “boost the dollar, hurt oil, and dent the ruble," said Tom Levinson, chief foreign currency and rates strategist at Sberbank CIB in Moscow, adding it’s just as likely the Fed will remain hesitant to alter monetary policy.

The Micex index of major stocks rose 0.4 percent to 1,986. Government bonds rose, with the the 10-year benchmark yield down one basis point to 8.34 percent.

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