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The Russian currency remains our preferred carry currency in EMEA EM. The Rouble restrained dollar’s bullish rout ever in highs of 84.9493 was unable to sustain from the beginning of 2016.
USDRUB has been consistently tumbling since then but from last 4-5 months going in sideways with the bearish environment. Leading and lagging technical indicators have been bearish bias.
Elsewhere, the stabilizing crude oil prices should continue to support the ruble. As the fundamental outlook gradually seems to be improved for oil prices over the medium horizon. Meanwhile, the recent negotiation activity among major oil exporting nations could lead to a decreased volatility in oil prices as well as the lower likelihood of any large drawdown.
In addition to that, we remain bullish on RUB following the recent hawkish CBR surprise. CBR once again re-iterated that real policy rate above the neutral range of 2.5%-3.0% is appropriate for the current environment.
In fact, real policy rates should stay above this range as long as inflation and expectations remain above 4%, and even for some time after inflation converges with the 4% target to better anchor longer-term expectations. This hawkish bias is positive for RUB.
Meanwhile, thanks to CBR dismissing near-term easing expectations as well as operations reducing liquidity in the system, 3-month FX implied yields have now risen to 9.85% from a low of 9.45% on September 8. This contrasts sharply with the fall in FX implied yields in Turkey, underscoring the divergence between the respective central banks.
The oil outlook remains a key uncertainty for RUB, but we believe sharp drawdowns are unlikely. RUB is currently trading fair to our short-term model based on oil and CDS. We highlight near-term risks from rising Libyan and Nigerian output but continue to expect oil to recover to $54pb by year-end.
Trade tips:
Contemplating above factors, we recommend shorts in near-month USDRUB futures for (t- 61.6169, s- 66.49) and in TRY/RUB (t: 20.50, s: 22.30).
