Euro set to slide against Russia’s ruble

LONDON: Buoyed up by bold policy measures from the European Central Bank and the US Federal Reserve, the euro has arguably risen further than merited against the Russian rouble.
From a low of 38.8482 roubles on July 23, days before ECB chief Mario Draghi pledged to do whatever it takes to preserve the euro, the single currency firmed to 40.8718 on Aug 31 before edging down to current levels just above 40.40 roubles.
A move lower for the euro could be triggered by a reappraisal of the prospects for both currencies. An initial target should be the 100-day moving average (currently 40.1050) and beyond that 39.8360, the present 200-day ma.
On the euro side of the equation, the currency market may begin to question whether the ECB’s new policy measures are a positive gamechanger in the euro zone financial crisis.
The ECB’s commitment to outright monetary transactions (OMTs) to backstop the paper of member countries is contingent on such countries accepting “conditionality” in the form of agreement to implement even more economically painful reforms.
Spain, the prime candidate for such ECB support, has not yet felt it necessary to sign up to even more austerity.
Investor patience may already be wearing thin, with 10-year Spanish government yields back nearer 6 percent than the 5.56 percent post-ECB low of Sept. 10.
The ECB plan stands or falls on the willingness of politicians to sign up to the economic conditions. Without that willingness, the plan is moribund and the logic driving the euro strength is seriously undermined.
The ruble’s prospects are arguably brighter.
While the ECB is easing policy, the Russian central bank is in tightening mode.
Thursday’s surprise quarter point hike in interest rates took the refinancing rate to 8.25 percent, the one-day fixed repo rate to 6.5 percent and the overnight deposit rate to 4.25 percent.
The Russian central bank is becoming increasingly focused on inflation targeting and a stronger rouble may suit it as that would temper the effects of imported price pressures.
Annual inflation was running at around at 6.3 percent in mid-September leaving the central bank in danger of missing its target of 5-6 percent for 2012.
Monday’s 5.1 percent August producer price index rise, far above the 1.2 percent increase expected by analysts, only supports the central bank move, even if industrial output growth slowed.
That disappointing August industrial output data should be seen in context. It followed unexpectedly strong data in July. Other factors may bolster the rouble’s value.
Privatizations will encourage rouble-positive capital inflows.
Strong investor interest in the Russian state’s sale of a $ 5 billion stake in Sberbank represents more than just enthusiasm for that particular offering.
It may prompt the government, which has plans to reduce the state’s 50 percent share in the economy, to revive its previously stalled privatization program.
Then there is oil, which, with Brent crude trading at near $ 113 a barrel on Thursday, is very supportive to a Russian economy heavily dependent on crude exports.
Russia’s oil export duty for September was expected to jump by 17 percent to $ 393.8 per ton from $ 336.6 in August following a surge in oil prices, according to calculations by the Finance Ministry and Reuters.
The rouble looks too weak against the euro and should firm.
— Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own.