Hedge funds have increased bets on the ruble weakening

Amid allegations of foreign exchange interventions the speculative mood of investors is changing. A short position in the ruble in the week ended January 24 rose almost 54%, to c 1483 2279 contracts, or the most since December, data from the Commission on trade commodity futures the United States. Thus large speculators in the face of hedge funds one and a half times increased the number of bets on the ruble’s weakening amid speculation that announced by the Russian authorities of intervention in the foreign exchange market will cause the weakening of the Russian currency, the excessive appreciation which threatens exporters. The net long position on the ruble increased by 669 contracts, up 17 465. This suggests that most traders still do not risk to play against the Russian currency.

The Finance Ministry last Wednesday announced that in February the Finance Ministry will save in additional oil and gas reserves, the income from the excess of actual oil prices over the budgeted $40 per barrel, and the Central Bank on behalf of the Finance Ministry will buy foreign currency in the volume of these oil and gas windfall to protect the economy and public finances from the volatility of energy prices. After the collapse in 2014-2015 the ruble in the past year rose against the dollar by about 20% since the beginning of the year rose a further 2.6%. Previously estimates of economists, who predict that the ruble may weaken by 5-7% due to the Ministry of Finance planned interventions.

Reports about the imminent intervention provoked a sharp decline of the ruble on Thursday, January 26, however, by the end of trading on Friday the Russian currency has won back most of the losses on news that U.S. President Donald trump may consider easing sanctions against Russia. The trump later said that this is still “too early to say.” Sunday, January 29, the press Secretary of the White house Sean Spicer said that the final decision from the U.S. anti-Russian sanctions is still pending. As of 18:22 GMT, the ruble strengthened by 10 cents compared with Friday’s close of trading, to 59,96 rubles per dollar.

The volume of currency purchases by the Ministry of Finance could be around $80 million a day, wrote in Friday’s review chief economist at Bank of America (BofA) in Russia and the CIS Vladimir Osakovsky. Under the baseline scenario, growth in oil prices in the third quarter to $66/bbl. the volume of purchase of currency may rise to $150-200 million per day. The Finance Ministry will announce the planned volume of purchases in the third working day of each month, the part announced Wednesday mechanism. At current oil prices, the volume of purchases, most likely, sostenitori $1 billion a month, said earlier the Agency three officials on condition of anonymity in connection with non-public nature of the plans. The potential volume of purchase of currency in 2017 could reach $15-20 billion, writes osakovskiy.


Analysts agree that bets against the Russian currency is risky and, although their numbers are growing, do not reflect the General trend. “In addition to verbal interventions from the authorities, all while speaking in favor of the ruble. The lifting of sanctions, if it is included in the price, partially”, — quotes Bloomberg review of the chief investment Department of UFG Wealth Management Ltd. Alexei Potapov.

“Metric reflecting the number of speculative bets, not to mention how the whole industry of hedge funds looks at the ruble. If you take a General trend (across the market), it is not so much the increase in short positions on the ruble, as the reduction long — says head of foreign exchange and money markets Metallinvestbank Sergey Romanchuk. — In General, Western hedge funds focus on long positions on the ruble, which is justified, as forecasts for the Russian currency this year in comparison with other emerging markets was very positive.”

“The increase in short positions — a risky game and invalid earnings, — says Evgeny Nadorshin, chief economist at PF Capital. — The Ministry of Finance intervenes on the basis of only one factor — energy prices relative to budgeted figures. For the currency market of Russia is now much more significant factors: the lifting of sanctions, the attractiveness of the Russian market from the point of view of speculative strategies, capital flows of residents and non-residents. This all has a significant impact on the market in a small current account. Therefore, we can observe now on the ruble trend, not related to the change in the price of raw materials. The fact that the actions of the Ministry of Finance will lead to the weakening of the ruble, it is not guaranteed”.

Chance for speculators

And yet that risk is. Currency purchases by the Ministry of Finance may exacerbate the fall of the ruble, if you will enter in resonance with the outflow of speculative capital, should be out Friday’s review of “Raiffeisenbank”. “It may happen that the stable prices for oil (above $40/bbl.) the mood of the residents will worsen, there will be capital outflows, the ruble significantly cheaper, and the Ministry of Finance, according to its rule of intervention will continue to buy foreign currency, thus increasing the pressure on the ruble, — says the review. — Moreover, it may be self-sustaining the weakening of the ruble (since excessive weakening of the ruble in stable oil translates to a greater volume of additional oil and gas revenues). The probability of this happening looks low”.

Russia’s efforts to protect national currencies against fluctuations in oil prices makes the ruble vulnerable to speculative attacks, analysts of Sberbank CIB. Anticipating the actions of the Central Bank, investors are “inevitably” begin to calculate the exchange rate for the month in advance and create strategies that may enhance the volatility, warns of Sberbank CIB. Investors are already predicting that the ruble will remain the most volatile currencies in the world. The index imputed a three-month ruble volatility is 14%, according to the Bloomberg terminal. Similar indicators for the Mexican peso and the Brazilian real account for 17% and 15%, respectively.