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Rouble extends gains as top EM performer

Russia’s rouble has cemented its position as the best-performing currency of the past three months, enjoying the benefits of a strong oil price at a time when the US appears to be tilting towards a more accommodating relationship with Vladimir Putin.

A 2.3 per cent rise in the rouble’s value against the dollar on Monday was followed by a further half per cent gain during Tuesday trading. A dollar was at one stage worth as little as Rbs60.61, its lowest level in 17 months.

The rouble’s three-month gain of 7.5 per cent, in contrast to losses felt across other emerging market currencies in the wake of Donald Trump’s election victory, caps a remarkable turnround in its fortunes.

In the first three weeks of 2016, it had lost more than 18 per cent of its value, falling to an all-time low of Rbs86 to the dollar. But in the year to date, it is up 15.8 per cent, making it 2016’s best-performing EM currency.

Just as oil’s sharp decline was the chief driver behind the rouble’s big January sell-off, so Brent crude’s surge after the Opec production cut is the chief reason for its current vaulted status.

Oil is “in the spotlight” said strategist Maxim Korovin of Russian bank VTB Capital, as crude climbed above $57 on Opec sealing a supply pact with Russia and other producers from outside the production cartel.

The deal also boosted the Norwegian krone, the Canadian dollar and the Mexican peso, adding to a mini-revival in the fortunes of EM currencies.

Other factors are supporting the rouble, said Piotr Matys, EM FX strategist at Rabobank, including the prospect of an improved relationship between Russia and the US.

The US president-elect has made “relatively constructive comments about the Russian president”, said Mr Matys. On Tuesday, Mr Trump nominated ExxonMobil chief executive Rex Tillerson as secretary of state, lauding the oil industry veteran as someone “with an experience of doing business in Russia”.

Mr Putin conferred on Mr Tillerson the “Order of Friendship” three years ago, although some Republicans have expressed concern about the nominee’s ties to Russia.

The rouble has been one of the highest yielding EM currencies, Mr Matys added, and the Bank of Russia is on Friday expected to keep its interest rate at 10 per cent.

Although the central bank is likely to resume its easing cycle at the start of 2017 while the Federal Reserve raises rates on Wednesday, Russia’s key interest rate should continue to be well above those in developed markets.

Adding to the mix is improved economic activity and further falls in inflation, making the rouble “an attractive EM currency looking forward to 2017”, said Mr Matys.

JPMorgan this week acknowledged an “improvement in the short term outlook” of the rouble, while Société Générale said that, with the Trump presidency continuing to be negative for EM currencies, the rouble stood out.

Recommending buying the rouble against the Turkish lira, SocGen said: “The Russian rouble is more protected than the Turkish lira on a scoring based on trade, security, local reactions, sentiment and US rates.”

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