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Ruble Extends Longest Losing Streak Since February as Oil Drops

The ruble declined for a fourth day, poised for the longest losing streak since February, as oil retreated and Citigroup Inc. cautioned the Russian currency could depreciate further against a rising dollar.

The ruble dropped 0.3 percent to 66.97 per dollar by 6:15 p.m. in Moscow, after falling 2 percent last week. Brent crude, the oil benchmark for pricing the country’s main export blend, declined 1.6 percent to $47.96 a barrel in London. Russian stocks tumbled to the lowest in more than a month and government bonds fell as the country marketed its first Eurobond since 2013.

The world’s best currency rally in the past three months is growing vulnerable to higher U.S. interest rates that Federal Reserve officials signaled could come as early June, according to Citigroup strategists. While driving the greenback higher, rate hikes would also sap appetite for riskier assets and diminish the appeal of a carry trade that helped investors make up gains lost to zero rates.

 

“I think the next couple of months will be challenging for all emerging-market currencies, including the ruble, because of the rising expectations of a June Fed hike,” Ivan Tchakarov, an economist for Russia at Citigroup in Moscow, said by e-mail. In the longer term, he forecasts a recovery in Brent crude to $52 per barrel by July will boost the ruble, allowing it to end the year about 8 percent stronger at 61.8 per dollar.

Hedge funds and other large speculators decreased net ruble long positions to 4,102 futures in the week ended May 17, down from 4,142 contracts in the prior five trading days, U.S. Commodity Futures Trading Commission data show.

Eurobond Sale

Russia’s Finance Ministry on Monday announced that it’s selling its first Eurobond since 2013, with state bank VTB Capital as the sole organizer of the deal. The Finance Ministry didn’t indicate how large the issue would be, but this year’s budget authorizes as much as $3 billion.

The initial price guidance on the 10-year dollar-denominated notes is a yield of 4.65 to 4.9 percent, according to a person familiar with the matter, who wasn’t authorized to speak publicly about the deal and asked not to be identified. That’s a modest premium above the 4.034 percent yield for Russia’s September 2023 Eurobond.

 

Five-year generic bonds declined, with the yield rising three basis points to 9.2 percent. The Micex Index fell 0.8 percent, dropping for a third day. VanEck Vectors Russia ETF had $16.8 million outflows on May 20, according to data compiled by Bloomberg.

original source: http://www.bloomberg.com/news/articles/2016-05-23/ruble-set-for-longest-losses-since-february-as-citi-sees-risks

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