Article / 27 July 2015 at 9:15 GMT

Rouble heading towards crisis again

Russia oil and gas expert
United Kingdom
  • Money managers building up rouble short positions
  • RUB downturn could see central bank revise reserve purchases
  • Weak commodity prices no friend to ailing rouble
  • USDRUB headed towards 60 after returning to below 50 in late Spring

Stormy weather: the first half of 2015 saw the rouble recover from its December 2014 lows, but forecasts for the Russian currency are becoming cloudier by the day. Photo: iStock

By Nadia Kazakova

As if on cue, leveraged money managers started to build up short positions in the rouble in mid-July, positioning themselves for a debt repayment peak in September. This is exactly what they did in mid-October of last year when they increased their short positions in the run-up to the spike in Russia's external debt repayments in December 2014. 

If the pattern repeats itself, there would be continuous pressure on the rouble over the next 10 weeks or so, especially if commodity prices remain weak. Late last year, the rouble bottomed out 12 weeks after the short positions reached their maximum on November 4. 

Net futures and options positions in the rouble, contracts:

The turnaround in leveraged money positions happened on July 14 and continued over the week ending July 21. Last time leveraged money turned net short to such an extent was on October 14, 2014, as Russia was facing heavy debt repayments throughout the fourth quarter of 2014 with a peak in December. 

The shorts were maintained for nine weeks, adding pressure on the rouble.

Russia's foreign debt repayments in all currencies ($ billion):

The situation is somewhat similar now. Russia would need to pay back $17 billion in September and then $24.6 billion in December. Unlike late last year, the overall amount payable (either in Q3 or Q4 of this year) is smaller than the massive $67.2 billion seen in Q4 2014. 

Also, there is less of an overhang of derivative positions (this might have been the straw that broke the camel's back in December 2014...).

At the same time, Russia's current account is historically at its weakest during Q3, and the slide in commodity prices could take the country's current account surplus into the single digits. 

Russia's current account ($ billion):
x Source: 

The central bank's policy of of purchasing $200 million/day in reserves is another negative for the rouble. So far, the central bank seems singlemindedly committed to increasing reserves; it would be interesting to see if there are any interruptions in these purchases if the rouble's depreciation accelerates markedly (compared to, say, headline oil prices).   

The public mood as reflected by the media might be firmly on the bearish side for the rouble. An article in the popular tabloid called its readers to buy US dollars now before they become more expensive. 

In writer Konstantin Smirnov's view, USDRUB could reach 65 in September and 75 by the end of 2015. On the positive side, the paper says, Russian goods are becoming more competitive on the international markets. 

The rouble has been in sharp decline since mid-June

Source: SaxoTraderGO

USDRUB was at 59.03 at 0856 GMT. It had returned to below 50 during late Spring.

A weaker rouble might be good for exporters, but it is bound to stoke inflation and hit consumption. Inflation would also make it difficult for the central bank to cut rates. 

All of this is ultimately bad for economic growth and, in the long run, bad for the rouble.

The autumn forecasts for Russia are not looking good. Photo: iStock

— Edited by Michael McKenna

Nadia Kazakova is a Russian oil and gas specialist


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