Ruble Volatility Slides to Two-Year Low on Carry Trade Appeal

  • JPMorgan remains bullish amid Bank of Russia’s Hawkishness
  • Carry appeal acts to steady market amid pre-OPEC jitters

Price swings in Russia’s currency abated to the least in two years as carry traders hung onto the second-best returns in the developing world.

The ruble’s three-month historical volatility fell to 14.24 percent on Monday, the lowest since October 2014, as the currency strengthened 0.6 percent to 63.7075 per dollar by 6:17 p.m. in Moscow.

A hawkish Russian central bank has only lent more appeal to the best carry trade destination after Brazil. Profit earned from using borrowed dollars to invest in the higher-yielding ruble has helped outweigh market volatility before oil producers’ meet this week. Russian policy makers, who have lowered interest rates by only 100 basis points this year, have said there will be no further cuts until 2017. A year ago, Goldman Sachs Group Inc. analysts were forecasting 500 basis points of reductions in 2016.

“The fact that the ruble has been stable as reflected in a low volatility should encourage carry traders, especially after the Bank of Russia explicitly said that it intends to keep the key rate" unchanged until year-end, said Piotr Matys, a currency strategist at Rabobank in London. “The 63-68 range should prevail at least in the coming weeks."

Today’s corporate tax deadline could also be offering support to the ruble, as companies are due to pay about 656 billion rubles in taxes, according to Sberbank CIB.

OPEC Effect

Oil has fluctuated since rallying in August on speculation the Organization of Petroleum Exporting Countries and Russia will agree on ways to stabilize the market when they meet in Algiers on Wednesday. The chance that a deal this week will include Russia has slimmed as its delegation plans to join discussions only after OPEC members reach a consensus among themselves, said three people with knowledge of the matter.

“The oil outlook remains a key uncertainty for the ruble, but we believe sharp drawdowns are unlikely,” said JPMorgan Chase & Co. analysts including Anezka Christovova in a note to clients. JPMorgan remains bullish on the currency, which it says will draw strength from the central bank’s commitment to positive real rates.

The Micex Index of major Russian stocks declined 0.6 percent to 1,998.97. The yield on 10-year government notes climbed for the second day, rising one basis point to 8.21 percent.

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