Ruble Jumps Most Since at Least 2003 Before Central Bank Meeting

By Vladimir Kuznetsov

The ruble surged the most since at least 2003 against the dollar, rebounding from a record low before a central bank meeting tomorrow that analysts predict will result in higher interest rates.
The Russian currency surged as much as 5.1 percent to 41.0005 per dollar, the biggest daily increase in Moscow Exchange data going back to 2003. It traded up 2.1 percent at 42.3005 as of 3:30 p.m. in Moscow. The currency slid 5.2 percent over the past six days, even as the central bank ramped up interventions to slow its decline.
Traders are reducing short positions before the Bank of Russia decision, according to Denis Korshilov at ZAO Citibank in Moscow. The volatility highlights the costs of President Vladimir Putin’s incursion into the Crimea region in March and alleged efforts to destabilize other parts of Ukraine, which have triggered U.S. and European Union sanctions that
shut Russian companies out of foreign capital markets.
“It looks like a short-squeeze,” Korshilov, the head of fixed income, currencies and commodities at ZAO Citibank, said by e-mail. “A technical correction is long overdue, especially ahead of the central bank’s possible interest rate increase.”
Bank of Russia has spent almost $68 billion on currency interventions this year as the crisis in Ukraine spurred capital outflows, including $28 billion so far in October, Goldman Sachs Group Inc. said in a research note today.
The extent of the ruble’s appreciation is also stoking speculation about whether the move was triggered by a deal between Russia and Ukraine over Crimea, or increased central bank activity on the currency market, according to ING Groep NV analyst Dmitry Polevoy.

Stochastics Study

The central bank’s press office declined to comment on the ruble, citing its blackout policy ahead of policy meetings. The Bank of Russia will increase the benchmark interest rate 50 basis points to 8.5 percent tomorrow, according to the median forecast in a Bloomberg survey of 31 economists.
There can’t be any agreements with Ukraine on Crimea as the Black Sea peninsula is part of Russia following its annexation by Putin in March, Dmitry Peskov, a spokesman for the Russian president, said by phone today.
The ruble’s rebound comes as the currency was the most oversold in nine months, according to data compiled by Bloomberg. The Relative Strength Index for the ruble against the dollar increased to to 32 from 16.8 yesterday. The yield on Russia’s 10-year ruble bonds increased one basis point to 10.11 percent, a five-year high.
“The ruble may be poised to appreciate against the U.S. dollar in the coming weeks after the slow-stochastics study, which measure the velocity of a security’s price movement, exhibits a bullish crossover near the oversold threshold,” said Bloomberg Technical Analyst Sejul Gokal. “A similar crossover in March this year led to a 6.2 percent appreciation of the the Russian ruble versus the greenback over a period of 13 weeks.”