Russia’s Ruble Shakes Off August Blues With First Gain in Decade

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(Bloomberg – – Vladimir Kuznetsov – August 31, 2016)

The Russian ruble headed for its first gain in August in a decade as a jump in oil prices and high domestic rates helped lure investors hunting returns in riskier emerging-market assets.

The currency of the world’s biggest energy exporter traded little changed at 65.24 against the dollar by 3:02 p.m. in Moscow, heading for a gain of 1.2 percent in August, the first monthly advance against the greenback in the month since 2006. Brent crude declined 1.3 percent to $47.75 a barrel, paring the best monthly performance for oil since 2000.

A 12.7 percent gain this month in Brent, used to price the country’s main export blend, and the second-best so-called carry trade in 2016 in emerging markets have supported the ruble in a traditionally weak period for the currency. The ruble has only gained against the dollar in August on three occasions since the collapse of the Soviet Union and the month has come to be associated with Russian catastrophes as well as the summer doldrums.

“The ruble’s stability this August is thanks to the carry trade and positive real rates in Russia,” said Alexander Losev, chief executive officer at Sputnik Asset Management in Moscow. “And if last August everyone was selling crude on concerns that Iran will drown everyone in cheap oil, a year passed and it’s still far from the promised level.”

Crude Support

Oil has gained this month amid speculation informal talks among OPEC members in Algeria next month may result in action to stabilize the market, while the Bank of Russia kept the key rate unchanged at 10.5 percent at its latest meeting in late July. Real interest rates widened to 330 basis points above the inflation level in August after annual consumer-price growth slowed for the first time in in four months.

Russian government bonds rose, with the yield on 10-year debt falling four basis points and heading for a decline of 30 basis points in August to 8.21 percent. The Finance Ministry sold all 15 billion rubles ($230 million) of September 2031 bonds it offered at its weekly auction with demand of 35.9 billion rubles.

The Micex index of major stocks fell 0.2 percent, looking to end the month with a 1.9 percent gain.

The ruble still has a chance to succumb to the August tradition if U.S. data set for release today on oil or jobs affects the trajectory of rate hikes in the U.S., according to Sberbank CIB.

“August is ending with markets increasingly sensitive to the U.S. rates story,” Tom Levinson, senior FX and interest rates strategist at Sberbank CIB in Moscow, said by e-mail. “Whether the ruble can hold on to its small gain this month will owe much to the ADP data due from the U.S. today and also weekly EIA oil data.”

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