Ruble drops 1st time in 3 days before Fed minutes as oil falls

Bloomberg: 19. November 2014
By Ksenia Galouchko

Pedestrians walk under a board listing foreign currency rates against the Russian ruble outside an exchange office in central Moscow on Nov. 10.

The ruble weakened for the first time in three days as oil retreated and investors curbed wagers on riskier emerging-market currencies on speculation over the timing of U.S. interest-rate increases.

The ruble slid 0.4 percent to 47.0660 against the dollar at 11:35 p.m. in Moscow. Two-year government-bond yields were unchanged at 9.96 percent before an auction today of 5 billion rubles ($106 million) of May 2016 notes, the Finance Ministry’s smallest sale in 14 months.

Brent crude traded at $78.20 per barrel, near the lowest price in four years on concern OPEC will resist production cuts. Russiareceives about half of its budget revenue from oil and natural gas sales. Investors are waiting for minutes from the Federal Reserve’s October meeting, when it ended its bond buying program as traders speculate the U.S. economy is strong enough for policy makers to consider raising interest rates.

“The market is expecting the Fed to raise rates,” Andrey Mishko, a foreign-exchange trader at National Standard Bank in Moscow, said in e-mailed comments. “The problems in the Russian economy and geopolitics haven’t gone away so in order to compensate for the low oil price, the ruble has to weaken.”

Crude’s decline into a bear market has exacerbated U.S. and European Union sanctions over Russia’s role in the Ukraine crisis, which shut companies out of debt markets and drove a shortage of foreign currency. A day after Russia and Ukraine clashed over how to move toward a new cease-fire agreement, Russia’s foreign minister Sergei Lavrov said the U.S. and the European Union had repeatedly “torpedoed” peace efforts.

Reserve Drain

The ruble has lost 30 percent this year, the most after Ukraine’s hryvnia among currencies tracked by Bloomberg worldwide, as its volatility relative to other currencies reached a nine-year high.

Last week the Bank of Russia abandoned its predictable rules-based interventions, which have drained its reserves by $90 billion since the beginning of the year to $421 billion. The central bank said it reserves the right to intervene without warning if it sees a threat to financial stability.

“It’s too early to say whether the ruble has found its balance,” Alexander Myulberger, head of foreign-exchange trading at BCS Financial Group in Moscow, said by phone. “It’s good that the central bank no longer intervenes and spends the reserves.”

The U.S. currency is up at least 5.8 percent against all Group of 10 peers since the end of June amid speculation the American economy is strong enough for Fed policy makers to consider raising benchmark interest rates. The minutes for release today are from the U.S. central bank’s Oct. 28-29 meeting.