Ruble Pares First August Advance in Decade as Tax Period Ends

  • Promsvyazbank sees ruble weakening to 70 this year on Fed rate
  • Russian companies finished paying monthly taxes on Aug. 29

The ruble pared its first August gain in a decade as the end of the monthly tax season removed support for the exchange rate and oil fell.

The Russian currency weakened 0.6 percent to 65.1325 against the dollar by 5:33 p.m. in Moscow, the lowest level since Aug. 24. Brent crude, Russia’s key export earner, dropped 1 percent to $48.75 a barrel.

Declining demand from companies converting hard-currency export revenue to meet tax bills trimmed August’s advance to 1.4 percent, still the best in the developing world after Colombia’s peso. The ruble is set for its first August increase since 2006, lifted by appetite for riskier assets amid hesitation by the U.S. Federal Reserve to exit a decade of near-zero interest rates and strengthening oil prices.

“The tax period ended yesterday and the slowing down of export revenue sales is making the ruble more dependent on external flows,” said Evgeny Koshelev, an analyst at Rosbank PJSC in Moscow, who sees the ruble depreciating to between 65 and 66 per dollar this week.

Carry Curtailed

The ruble will come under pressure in the fourth quarter in response to speculation the Fed will increase rates in December, strengthening the dollar and curtailing carry-trade profits, according to Promsvyazbank PJSC. The strategy of buying Russia’s currency using borrowed dollars returned 21 percent this year, the best result after Brazil, according to data compiled by Bloomberg.

The odds of an increase in U.S. borrowing costs by December have risen to 60 percent from a low of 8 percent reached June 27, according to Bloomberg data.

Promsvyazbank forecasts the ruble will end the year at 70 per dollar because of tightening U.S. policy.

“We expect a small weakening of the ruble caused by the U.S. Fed’s expected minor rate hike and oil’s retreat," said Sergey Narkevich, an analyst at Moscow-based Promsvyazbank.

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