The ruble recovered from earlier three-month lows in volatile trade on Wednesday, tracking oil prices in what market players said was proof that the recent sharp retreat had been caused by external factors.
The ruble is down some 5 percent versus a dollar-euro basket from its mid-November peaks. A retreat in oil prices and a spike in risk aversion on the back of Dubai debt woes prompted investors to lock in profits on a three-month-long rally as they brace for the end of the year and long January holidays.
On Wednesday, the ruble eased as far as 37.52 versus a dollar-euro basket, before taking heart from a recovery in oil prices and a broadly weaker dollar to reverse losses and close a bit firmer on the day at 36.88.
“This is a national Russian pastime known as December on the currency market,” said a dealer at a major Russian bank.
“Oil is higher, the euro is higher. So maybe people have understood that they overestimated their power,” said a dealer at another bank, adding that the Central Bank was not behind the move.
During the ruble’s retreat, dealers said the Central Bank likely came out with small so-called “planned” interventions within the floating band possible at several hundred million dollars. But extensive interventions are not expected until and unless the ruble reaches the band’s boundary at 38.00.
Some analysts say authorities may welcome the latest move, as there was concern that a strong ruble could compromise the economy’s fragile recovery from recession.
By allowing greater volatility, the Central Bank increases the risks for speculators and reduces the need to introduce soft capital controls to discourage short-term inflows, they say.
The ruble’s fall over the past two weeks has erased most of its nearly three-month-long, oil-fuelled rally. “Such a major correction on the forex market seems to us to be fundamentally unjustified, even though oil prices are several dollars down from their 2009 highs,” Renaissance Capital said.
The market also appears not to believe that the ruble’s sharp correction will continue. Nondeliverable forwards, a barometer of market sentiment, showed the ruble at 32.67 in 12 months’ time compared with 30.36 now.
That implies a fairly modest depreciation of 5.2 percent from current levels — compared with expectations for a 20 percent slump this time last year.
“The situation on the markets has not led to the appearance of devaluation pressures, so once the negative impact of the external backdrop eases, the ruble will turn around in the opposite direction,” analysts at Trust Bank said in a note.
Other market players, however, say that any meaningful correction toward a stronger ruble is unlikely until January, with investors unwilling to hold open positions through the end of 2009 and nearly two weeks worth of Russian New Year’s holidays.
Other near-term risks for the ruble include the estimated $20 billion of corporate foreign debt repayments due this month, as well a liquidity surge from some 1.7 trillion rubles ($55 billion) still due to be spent from the 2009 budget as of end-November.
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