Unsurprisingly, increased trading activity is directly related to Ukrainian turmoil
Volumes of FX contracts that shook hands in the month of February has spiked to an all-time high of RUB 17.8 trillion ($489 billion) in the month of February. That is higher by more than 35% over last month’s figures. Volume metrics were affected by rapidly escalating geopolitical tensions in Ukraine and the subsequent drop of the Russian ruble to a new 5 year low. After the seasonal drop in January due to Russian holidays, volumes and FX volatility have rebounded sharply.
The new record high comes at a cost – the tensions that are driving the market in recent weeks are not likely to abate any time soon. Money seem to be fleeing away from Russian assets at an alarming rate with the Russian ruble being in a virtual free-fall for the past couple of weeks. To put it in a longer term perspective, Moscow Exchange’s volume metrics are double those reported in February 2013.
Spot trading accounted for 35% of the total, while swap trading added the remaining 65%. An absolute record for average daily volumes has been set at RUB 888 billion ($24 billion), while the exchange mentioned increased interest in CNY/RUB trading that amounted to RUB 2.6 billion daily ($71 million).
Investors have rallied to cover their exposure to the Russian market today as the geopolitical tensions in the region have increased and the Russian Stock market shed 13%. The Central Bank has raised interest rates by 150 basis points in an effort to calm the market and it has worked for the time being, however future trading volumes will be more affected by the geopolitical situation than Russian central bank actions.