Ruble Weakens First Day in Three as Oil Adds to Sanctions Risks

  • EU is considering sanctions against Russia over Syria: draft
  • VanEck Vectors Russia ETF saw $14m outflows on Oct. 19

The ruble retreated for the first day in three as oil dropped and the European Union weighed penalties against the recession-hit nation over its conduct in Syria’s civil war.

Russia’s currency weakened 0.2 percent to 62.41 against the dollar by 5:37 p.m. in Moscow. The benchmark Micex equity gauge retreated 0.4 percent as oil dropped for the first time in three trading sessions, losing 2.1 percent to $51.56 a barrel.

The European Union is considering sanctions against Russia over Syria, joining the U.K. and the U.S. in weighing additional penalties, according to draft conclusions from a two-day meeting of EU leaders in Brussels. The ruble remains the best performer in emerging markets over the past month after Mexico’s peso, buoyed by a deal from the Organization of Petroleum Exporting Countries to cut production.

“Oil’s decline is always bad news for the ruble,” said Oleg Popov, a money manager at April Capital in Moscow. “Investors are starting to worry about the expansion of sanctions against Russia."

Worsening sentiment toward Russian assets also reflects a broader trend among investors cutting exposure to riskier emerging markets before U.S. elections and the Federal Reserve’s December rates decision. VanEck Vectors Russia ETF, the biggest Russian exchange-traded fund, had about $14 million outflows on Oct. 19, according to data compiled by Bloomberg.

At the same time, upcoming monthly tax payments, for which Russian companies usually buy rubles, are preventing the ruble from further weakness, according to Renaissance Capital and Alfa Bank. Sberbank CIB estimates the size of this month’s tax bill, the heaviest portion of which is due next week, at about 1.1 trillion rubles ($17.6 billion).

“Exporters’ dollar sales remain a very strong support factor for the ruble,” Igor Akinshin, a foreign-exchange trader at Alfa Bank in Moscow, said by e-mail. “Many companies see the current level as attractive for foreign-currency sales."

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