Ruble Recovers With Oil as Citigroup Says Selloff Went Too Far
The ruble climbed from the weakest level since February as oil rebounded and Citigroup Inc. raised its recommendation on Russia’s currency, saying the slump was «excessive».
The ruble strengthened 0.5 percent to 63.1770 against the dollar by 5:26 p.m. in Moscow after slipping 10 percent in July, the biggest drop among major global currencies. Crude oil, which tumbled into a bear market last month, rose 1.3 percent to $50.17 a barrel in London.
The Bank of Russia was forced last week to halt its daily dollar purchases after the ruble retreated with oil to the lowest levels in six months. There are signs the drop may have gone too far: the ruble’s 14-day relative strength index fell to 21.1 yesterday, the lowest since Dec. 16 and below the level of 30 that signals to some analysts that losses are overdone.
«Oil is recovering from its big drop and is picking up the ruble», Vladimir Bragin, head of research at Alfa Capital in Moscow, who sees the currency climbing to as strong as 55 by year-end, said by phone. «We have to get used to the fact that the free-floating ruble is going to be very volatile now». The central bank cited risks related to currency-price swings in its decision to stop buying foreign exchange and policy makers opted for the smallest interest-rate cut this year on July 31. While the ruble may continue to weaken, there may be «some pullback» if the central bank boosts its rhetoric on the currency, Citigroup analysts wrote in an e-mailed note Tuesday, as they raised Russia’s currency and bonds to neutral from underweight.
The yield on Russian five-year notes fell six basis points to 10.96 percent.
Russia’s currency is 3.4 percent weaker this year after climbing as much as 24 percent through May 13. It slumped 41 percent last year as collapsing oil prices exacerbated investor concern over sanctions imposed by the U.S. and European Union for Russia’s role in the Ukraine conflict.
Forward-rate agreements signaled a 20 basis point increase in the central bank key rate over the next three months, the biggest since December. Russia reduced interest rates for the fifth time this year last week and dropped its pledge to continue easing as inflation decelerates, signaling a less certain policy path after the nation’s economic slump worsened.
The Micex Index of shares rose 0.4 percent, while the dollar-denominated RTS Index was little changed. GMK Norilsk Nickel PJSC added 3.4 percent and OAO Sberbank advanced 1.2 percent. Norilsk shares climbed after its board recommended paying $800 million in interim dividends even as metals prices decline.