FxWirePro: Lingering Optimism of CBR Rate Hikes to intensify RUB – Strategic Options Structures to Hedge USD/RUB

The ruble has been the top performer among EM currencies over the past month, which is surprising given the lingering oil price and sanction risks weighing against it. A further rate hike by CBR today could further bolster this performance in the near-term. The median consensus expects no change in rate at today’s meeting. But a non-trivial proportion of analysts do expect a 25bps hike – we fall in this camp. 

We could foresee three major drivers predominantly for a rate hike: 

1) Potential ruble weakness/volatility if the oil price fails to move higher even after OPEC production cuts. 

2) High likelihood of fresh sanctions in the new year which could rock the currency. 

3) Pre-empting an assumed Fed rate hike in December. Top this off with CBR governor Nabiullina's remark – that the market should not anxiously scrutinise every small rate step as these are unlikely to have any effect on the economy – and these make a 25bps rate hike likely today. This should be the last one in this cycle and the next move in rates could be down. The above reasons are not very strong because growth in Russia is quite anaemic and inflation below target – there is no strong reason why CBR should be so anxious about every little ruble volatility either. 

Trade tips: At spot reference: 66.495 levels, 2m USDRUB 1x1 put spread (67.057/64.14) is advocated. Courtesy: Commerzbank

Currency Strength Index: FxWirePro's hourly USD spot index is inching towards 140 levels (which is bullish), while articulating (at 12:08 GMT). 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex