The ruble weakened for a second day, trimming a three-month rally that Deutsche Bank AG says has yet to run its course.
While the currency depreciated 0.7 percent to 66.4260 per dollar by 2 p.m. in Moscow, Deutsche Bank strategists said the ruble is in a “prime position” to build on its 11 percent advance in 2016. The bank based its projection on a view that crude, Russia’s main export earner, will “grind higher” and for penalties imposed over the conflict in Ukraine to be lifted within “a year or so.”
In addition to these factors, Russia’s currency will get support from the central bank’s cautiousness on resuming a cycle of interest-rate cuts that it shelved last year, leaving benchmark borrowing costs at 11 percent. The elevated rates are helping bolster the ruble’s appeal among carry traders who borrow in dollars to buy higher-yielding debt.
There are “reasons other than crude to be bullish on the ruble over a medium-term horizon,” Deutsche Bank’s Gautam Kalani and Christian Wietoska said in a research note. “There is a chance that sanctions are lifted within the next year or so, which is positive for both capital inflows and sentiment around the ruble.”
The depreciation on Tuesday came after Brent crude slid 3.8 percent a day earlier when Russian markets were closed for a public holiday. Oil climbed 0.7 percent to $43.92 a barrel today.
Carry traders have earned 15 percent investing in the ruble this year, the most after Brazil’s real among 23 emerging-market currencies tracked by Bloomberg. The main driver of the Russian currency’s bounce was oil’s almost 60 percent jump since touching a 12-year low in January. Crude and natural gas account for about 60 percent of government export revenue.
Russian bonds also trimmed gains on Tuesday, dropping for the first time in four days. The yield on 10-year local-currency debt increased three basis points to 8.99 percent, reducing the decline in the past month to 28 basis points. The Micex Index of equities fell 0.9 percent to 1,885.34.