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In Russia, there have been comments from officials this week following RUB’s recent appreciation. Despite the onset of CBR FX purchases of around $2bn per month, the ruble has appreciated on the back of resilient oil prices, a weak dollar and a more hawkish CBR.
Following this recent RUB strength, we have seen increasing verbal intervention from officials:
CBR deputy governor Ksenia Yudaeva has suggested that:
1) A cautious approach to rate cuts remains appropriate - this suggests to us that policy rate cuts appear an unlikely step to counter RUB appreciation;
2) RUB’s deviation from fair value is not large and does not bring financial stability risks –this suggests a low probability of ad hoc FX intervention.
Economic minister Maxim Oreshkin has stated that:
1) The recent RUB appreciation was short-term, affected by seasonal factors;
2) RUB is seen to depreciate soon then stabilize;
3) The government will react quickly if RUB appreciates further. These recent comments signal to us that verbal intervention is preferred to rate cuts and ad hoc interventions in Russia for now.
Given recent RUB strength, we were stopped out of long USDRUB (see below for further details), but we hold long via USDRUB call spreads.
Hedging Strategy (USDRUB):
For now, contemplating bullish rout in long run amid short-term slumps in USDRUB, we advocate 1m3m USDRUB 1x1 diagonal credit call spread with conviction (52.3076, 60.56), at spot ref: 57.5993 the positions could be entered at net credit.
Execution: Keeping the above fundamental factors in mind, it is advisable to go long in 3M (strike at 60.56) OTM 0.36 delta call while writing 1m ITM call (strike at 52.3076) with positive theta and delta closer to zero (both sides use European style options), this credit call spread option trading strategy is recommended when USDRUB spot FX price is anticipated to drop moderately in the near term and spikes up in long term.
