Ruble rockets back to pole position

Last year, the Russian ruble was in dire straits, financial markets in the nation plagued by the introduction of astronomical 17% interest rates just a matter of months ago, and liquidity shortages which substantially hindered trading in ruble pairs across many FX brokerages.

At the end of 2014, LeapRate conducted extensive research on the matter, documenting the measures that many FX firms were taking, which ranged from suspension of ruble trading and leverage restrictions, to the seeking of new liquidity providers, as well as removing the ruble from their range of instruments altogether.

To compound this further, Standard and Poor had downgraded Russia to near-junk status in the second quarter of 2014, and the summer heralded a war between Russia and neighboring Eastern Ukraine, with the usual disastrous effect on the economy that usually results from conflict.

As 2015 heads into its second quarter, however, the ruble has not only restored its credibility but has become the currency to watch, transforming itself from its unfavorable position as the black sheep among assets to desirability in the space of just four months.

One-year chart of USD/RUB. Courtesy: BarChart

One-year chart of USD/RUB. Courtesy: BarChart

Today, the ruble is at its strongest level against the dollar since the end of 2014, trading at 53.64 to the dollar, around one-third stronger than its weakest point in mid-December. This year, the currency has gained 5% against the dollar and 18% against the continually flagging euro.

The Wall Street Journal reported that state-owned Sberbank, the country’s largest lender, confirmed that Russians are selling off their foreign currency as the ruble strengthens. The bank said that the amount of foreign currency sold by retail clients is higher than the amount purchased over an extended period for the first time since 2012.

Sberbank continued to explain that in the first week of April, retail clients sold 60% more foreign currency than they bought.

The ruble has been lifted mostly by a swift pickup in oil prices, with the cost of Brent up almost 30% to nearly $60 a barrel from a six-year low of $46.59 hit on January 13. The currency is also being supported by waning demand for dollars and euros that had been needed to pay foreign debt, as the peak of debt reimbursement has passed.

Economy Minister Alexei Ulyukayev said the ruble is now trading at a level that is “fundamentally justified.”

The Moscow Times reported that the market has reconciled itself to the growth of the ruble and it’s risky to stand against it,” ING’s chief economist in Russia, Dmitry Polevoy, wrote in a note to investors yesterday.

Bruised by wild ruble volatility over the last six months, which has seen the currency swing from the world’s worst performing to its best performing, experts are reluctant to predict future values, but some analysts warned yesterday that the ruble rebound could soon fizzle out.

Should that occur, two potential outcomes could arise for FX firms and traders, the first being the onset of high volatility which could spur trading activity, and the second being a return to the liquidity shortages of last year.

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