Article / 12 September 2016 at 12:30 GMT

Winter is coming and rouble feels the chill

Sales Trader / Saxo Bank A/S
  • USDRUB rangebound for considerable around around the 65 mark
  • oil price stabilisation has helped ballast rouble
  • Budget deficit could near double towards $50bn by year-end
  • Pressure on rouble likely to ramp up by year end


It's been a relatively stable period for USDRUB but there are strong signs
pointing towards a higher exchange rate as the budget deficit widens. Photo: iStock

By Kirill Samyshkin

It has been a while since I last commented on the Russian currency, coinciding with a rangebound USDRUB at 62.80-67.50. Not that there is interdependency between those two events, but the first is usually inspired by the second.

Having said the above, it looks like the rouble is establishing the platform for a rebalancing.

Signs of stabilisation on the oil markets from early March 2016 to date has brought rouble to a less vulnerable state. With Russia-Opec verbal interventions supporting the Brent price from below $38-40/barrel and risks of extended oversupply keeping them from breaching $52-55/b the lining for the income part of the state budget for both the second half of 2016 and the whole of 2017 has subsequently solidified. That still does not offer a solution to the existing imbalances in the system.

The running execution of the current budget, according to the latest report by the Ministry of Finance, is showing a deficit of approximately $23.6 billion. Considering the seasonal tendency of the budget expenditures to jump in November-December, with the average pace of surplus to narrow/or deficit to steepen by $12.4-23.3bn October to December in the last five years, we may well expect the 2016 budget deficit to constitute more than $46.6bn.

At the same time, despite sovereign debt being stable at  around $49-51bn, total external debt amounted to $521.5bn. Banks and non-financial organisations schedule for total external repayments for Q2-Q3 2016, according to the CBR estimate and layered to the USDRUB chart, point to a ramping up of pressure on rouble each time net repayment exceeds $3bn.

USDRUB has been largely rangebound around the 65 mark


Taking into account the traditional high season for external repayments in November and December we may expect additional support to be found again by USDRUB in Q4 2016.

One of the internal factors working against rouble is the growth of money supply. With current inflation levels kept at 6.9% (as of August 2016), the Central Bank of Russia is attempting to sterilise money supply, resuming depositary auctions last month (four auctions between August 9 and September 6 for a total RUB 820bn; the first since February 2015 and first of a duration longer than one week since August 2012).


Last but not least, the well-anticipated State Duma elections take place September 18, and they will have trained the regulator’s focus on stabilization of the national currency until now.

In the post-elections phase, the regulator may shift its approach to the more practical course, primarily acting to assess the current and next year’s budget deficit, which is again well seen seasonally on the chart:

Whither rouble after September 18?


Source: Saxo Bank

Taking into the account all of the above, the rebalancing of rouble to a 71.6-75.2 range with possible spikes above 80 against dollar looks like a very natural course for the two quarters straddling year-end.


The Central Bank of Russia is fighting on many fronts but the
rouble could be creaking over the winter. Photo: iStock

— Edited by Martin O'Rourke

Kirill Samyshkin is a trader at Saxo Bank

AlexF AlexF
Dear Kirill if you would start a trade would you advise it via forex option or spot ? Could you make some suggestions ?
Pandorra Pandorra
Same question. How that incl possible squeeze and spikes could be realized via options strategy . Pls advice.
AndrejLences AndrejLences
Imho that's the worst article I saw here.
Kirill Samyshkin Kirill Samyshkin
Dear AlexF, Pandorra - I would normally consider building a bull put spread, earning on the short in-the-money leg, but the pricing isn't very advantageous for the far expiry deep ITM USDRUB puts for the obvious reasons. Hence, it is either long spot + protective put; or - buying ITM volatility, with deep ITM long call leg (giving us close-to-1 Delta and lower time value) and lesser ITM long put leg.
AlexF AlexF
Dear Kirill please could you give some advice on the put option you would choose in terms of PT and time tx
Kirill Samyshkin Kirill Samyshkin
Dear Alex, i would timing the expiry for the end of January/beginning of February, regarding the strike for the put - this is always the personal choice, depending on how much you are willing to pay for the hedge and what is your risk tolerance.


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