Ruble at Strongest Level Since December

By Andrey Ostroukh And Chiara Albanese 

        MOSCOW--The once-battered Russian ruble firmed to its strongest level since late December on Wednesday, as a recovery in oil prices and a more stable geopolitical outlook restore investors' confidence in the market.
        Versus the dollar, the ruble strengthened to 53.42 in early trade on the Moscow exchange, a level last seen on Dec. 26, taking its year-to-date gain to around 5%.
        The ruble was heading toward fundamentally justified levels, Economy Minister Alexei Ulyukayev said Wednesday. Though the dollar now hovers beyond an average rate of 61.5 rubles factored into this year's budget,
        Deputy Finance Minister Maxim Oreshkin said the current ruble strengthening won't substantially affect budget revenues from oil exports.
        A swift pick up 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 Jan. 13, has been the main driver of the recovery in the ruble. Helped by more favorable commodity market conditions and better liquidity, the ruble has been outperforming recently other high-yielding emerging market currencies.
        Sberbank CIB, an investment arm of Russia's largest lender Sberbank, said it saw nonresidents' interest in buying into rubles returning again to the market. Households, who purchased over $30 billion worth of foreign cash in 2014, are now also seen converting dollars and euros back to rubles, Sberbank CIB said.
        "It always feels good to be on the winning side of a trade," said Viktor Szabo, portfolio manager at Aberdeen Asset Management who had bought ruble at cheaper levels.
        The currency appears to be supported by stop-losses in long-dollar positions, triggered by investors had placed bets on the currency falling further against the dollar, said Phoenix Khalen, analyst at Société Générale.
        "Additionally, retail investors who capitulated in December may have begun to reverse their decisions in deciding to sell back hard currency in light of strong recent ruble gains, and this may be further fueling the ruble rally," she said.
        The ruble is also supported by waning demand for dollars and euros that had been needed to pay foreign debt, because the peak of debt reimbursement has passed. After Western sanctions shut the global capital market for Russian banks and companies, the latter sought hard currencies on the domestic market, which had a strong adverse impact on the ruble.
        ING Bank said in a note that another reason for the ruble's recovery is ruble deposits that still offer attractively high rates, which should encourage conversion of foreign currencies.
        The central bank, which raised the key rate to 17% in the middle of the night in mid-December, has cut rates twice so far this year. But even with the key rate of 14%, ruble yields are still far above the single-digit readings seen a year ago.
        The ruble's rally, however, may be short-lived as geopolitical tensions around Russia's role in the Ukrainian crisis remain in place. The oil prices outlook also looks uncertain.
        "The ruble rally is looking stretched and I think that the 50 level against the dollar might prove tough to clear," said Piotr Matys, a strategist at Rabobank.
        Write to Andrey Ostroukh at andrey.ostroukh@wsj.com and Chiara Albanese at chiara.albanese@wsj.com
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        (END) Dow Jones Newswires

        April 08, 2015 06:57 ET (10:57 GMT)

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