31 October 2017 at 15:17 GMT
- Ruble escapes recent EM weakness but Mueller inquiry applying pressure
- Likelihood of new US sanctions increasing as evidence of interference mounts
- 'In my view RUB is very poorly priced relative to this risk'
Washington is feeling the impact of the Mueller inquiry, and the Russian ruble
might quickly follow suit. Photo: Shutterstock
By John J Hardy
We have seen a lot of pressure on emerging market trades of late as the USD has staged a bit of a comeback and US rates have also marched higher.
The Russian ruble has escaped almost all of the weakness seen elsewhere in the EM complex, perhaps on confidence at the margin that the recently higher oil price is sufficient to offset these risks. But the latest news from Special Counsel Mueller's inquiry into Russian interference in the 2016 election is finally seeing some more persistent RUB weakness today – even as the USD is mixed and rangebound elsewhere.
I see very strong risks of harsh new financial sanctions against Russia on this news. There is increasing evidence of a deep and comprehensive attempt by Russia to effect the US elections via contacts with officials, hacking, and sophisticated PR in social media.
Regardless of what observers believe about whether the US does similar, or whether the ads on Facebook etc., were modest in USD spent terms, the US will likely respond forcefully.
In my view, RUB is very poorly priced relative to this risk as USDRUB could trade to 62-64 in the coming weeks/months on a reassessment of the situation.
A huge move on the daily chart...
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Source: Saxo Bank
...hardly rates from a weekly perspective, and given the ruble's history.
Source: Saxo Bank
— Edited by Michael McKenna