The Ruble is 3% stronger today and hovering around 52 Rub/USD. The currency is 25% stronger than it was on Feb 1 and 40% better than it was on near the closing level of mid-December when it spiked lower. The currency also is now trading below its 200mda for the first time since July 2014.
Much of the recent move is coming from market factors that are not a read on improvement in the Russian economy or a glimpse into geo-political tensions easing.
The move is also in no way representative of an improved global oil view. All of this is happening with oil prices somewhat sideways but with the USD significantly stronger against the broader EM.
So, what gives? The Central Banks of Russia is providing cheap Ruble funding for corporates and banks. This creating interest by locals and market players to sell Dollars and Buy Rubles so they can benefit from this “local carry trade” My guess is the Russian banks who are particularly close to the CBR are actively playing in this effective arbitrage.
All of this is leading to drive the Ruble higher. If we see the CBR start to lower amount of funding for banks the Ruble will reverse. Be careful in assuming this artificial bid (not based on fundamentals) will continue unabated. In fact after such a strong move we would argue the Ruble is back to fair value in the context of current oil prices.
My guess is the government realizes that a stronger Ruble in a weaker oil price environment is NOT good for the economy. In fact one of the reasons why Russian oil stocks ( and other Russian commodity exporters) were oversold in Ruble terms (not Dollar) was because as the Ruble plunged the Ruble cost base of these companies more than compensated for the overall impact to their business. In fact at a 55/Rub exchange rate, Russian oil companies are as profitable as they might be at $85 oil.
We think you can trade the RSX and other Russian market conduits form the long side here but do not believe this is a free pass and an “all-in” sign.