Russian Ruble Strengthens and Global Markets React: Weekly Market Update

Main

• The trading week on the Russian foreign exchange market ends with the ruble overweight: foreign currencies have lost more than a percent since last Friday. There was much more, but so far buyers of the dollar, euro and yuan are resisting.

• On the Russian debt market, OFZ prices are rising, their yields are falling, and the government bond index RGBI: 119.7 points has updated its October highs, where it was before the sharp increase in the Central Bank rate to 15%. In market assessments, tough monetary policy has reached its peak.

• On the global foreign exchange market, the dollar also fell relative to world currencies amid ambiguous comments from the Fed – market participants doubted the regulator’s determination to further increase the key rate, and this is positive for risky assets and negative for the US national currency. US bond yields also fell, another positive for stocks.

• The commodity market is again above $87, the idea of ​​buying out local drawdowns continues to be justified. closes the week with minor losses, but the quote at $1990 after a record rally of +10% indicates the stability of the upward trend. NG gas ends the trading period above $3.5/Mmbtu; the target for the coming weeks remains at $3.7.

In detail

The global US dollar fell by a percentage point from a weekly peak – this is a lot for the main funding currency; DXY, reflecting the dynamics of the American against a basket of other world currencies, after the Fed’s decision, dropped from 107 p. to 106 p. The euro quickly took advantage of this, and the pair: 1.064 bounced from the minimum by the same percentage. The reason for the change in currency sentiment lies in the interpretation of the results of the Central Bank meeting – probably, the peak of a tight monetary exchange rate is already close.

The dynamics of the international debt market are associated with the same monetary factor from the Federal Reserve – US government bond rates fell sharply, from under 5% they plunged to 4.65%. The further trajectory of DXY and UST will also depend on Friday’s employment statistics for October – a sharp decline is expected. The cooling of the labor market is positive from the point of view of inflation and the likelihood of an approaching Fed monetary reversal.

The same laws apply in the Russian debt market as in the global financial world – tightening by the Central Bank leads to sales of bonds, and their yields rise. But the government bond index has been rallying for a week now: it rebounded from the annual bottom by about 2.5% – at its minimum the index was below 117.3, and now it is above 119.7 points.

In fact, the securities in the index returned to the levels when the Central Bank’s key rate was 13%. But it’s already 15%. There is a certain inefficiency. In reality, this means that in our country, market participants are waiting for the end of the rate hike cycle from the Central Bank and are buying bonds for the future now, while fixing high yields.

The Russian ruble ends the fourth week in a row with strengthening against all currencies. Since the peak of foreign exchange, which was a month ago, the ruble has recovered over 10%. At important levels we see spikes in volatility – buyers and sellers of foreign currencies are trying to measure their strength, but still some advantage remains for the participants in strengthening the ruble.

We are, of course, talking about the factors of the rigid cycle of the Central Bank and the standards for the return of revenue from abroad to the Russian foreign exchange market. These factors continue to play for the ruble. Many may not have expected such agility from the ruble. But our estimates have remained unchanged in recent weeks: the abnormal rise of currencies in early October against the backdrop of a supply shortage and increased demand was temporary, and as soon as the Central Bank suppressed demand and regulations expanded supply, the ruble sharply returned to its fair levels. Let’s remember that this is 90.

The technical target for October was 92.5. This level has been tested many times in recent days, pierced and bounced off, but so far the dollar has not been able to gain a foothold under it. Today the couple was once again under the principle level, but again did push-ups.

The strength of the level may be tested many more times in the coming weeks. Nevertheless, the pattern of downward currencies and a strengthening of the ruble has not yet outlived itself, which means there is no point in changing the point of view. Even with the increased volatility of trading, we still expect to see the dollar exchange rate at 90 by the end of autumn.

2023-11-03 12:36:00
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