Jan 12, 2015 6:40 AM ET
The world’s top ruble forecaster is unimpressed by the currency’s 30 percent rebound from a record low.
The analyst -- Danske Bank A/S’s Vladimir Miklashevsky -- says the ruble could be testing new lows again this quarter as the plunge in oil, Russia’s top export, threatens to cost the country its investment-grade credit ratings and turns Russians away from their currency. The ruble traded at 62.32 per dollar at 2:35 p.m. in Moscow, after reaching 80.1 on Dec. 16, the weakest on record.
“We can easily see new records as the oil price is much lower,” Miklashevsky said by phone from Helsinki, last week. Concern over a rating cut and the loss of confidence among Russians “are the ingredients for a further bout of weakness,” he said.
Depreciation would exacerbate the challenges facing President Vladimir Putin as the economy teeters on the edge of a recession and investors dump the nation’s bonds. Fitch Ratingsdowngraded Russian debt on Jan. 9 to the lowest investment grade amid plummeting crude prices and sanctions over Ukraine, maintaining a negative outlook. Standard & Poor’s is also weighing a junk rating for the world’s biggest energy exporter.
Dollar Terms
Russia’s economic outlook has “deteriorated significantly since mid-2014” after the sharp falls in the oil price and the ruble, coupled with a steep rise in local interest rates, Fitch said in its statement. The nation’s ruble notes lost 55 percent in dollar terms since the end of June, the biggest decline in the Bloomberg Emerging Market Local Sovereign Index.
Danske, which topped Bloomberg’s rankings of foreign-exchange analysts for the four quarters through December, predicts the ruble will average 75 to 77 a dollar in the first quarter. Options data compiled by Bloomberg shows a 35 percent probability of the Russian currency setting a new all-time low by March 31.
Brent crude is trading more than $10 below the $60-a-barrel level that the Russian central bank says could lead to the economy shrinking as much as 4.7 percent this year. Sanctions related to the Ukraine conflict have shut Russian companies out of global capital markets. The ruble has lost 2.5 percent since the start of the year -- after a 46 percent slide in 2014.
Junk Credit
While S&P signaled last month it may drop Russia below investment grade within 90 days, credit-default-swap traders already treat the nation as junk. The cost of insuring government bondsagainst non-payment for five years was the fifth-highest globally, above speculative-grade countries including Lebanon, Egypt and Portugal.
If S&P does downgrade Russia, all of the country’s assets will feel the pain, Tatiana Orlova, chief economist for Russia at Royal Bank of Scotland Group Plc in London, said by e-mail Jan. 8. It may have a contagion effect on other markets, the second-most accurate forecaster said.
RBS, which last month predicted the ruble at 55 to the dollar in the first quarter, is reviewing that prediction and won’t exclude further weakness, Orlova said. She doesn’t expect the central bank to sell dollars or raise interest rates further. Instead, the government may put pressure on exporters to sell their foreign-exchange holdings, according to Orlova.
‘Lost Year’
The yield on the government’s ruble-denominated notes, or OFZs, due in August 2023 jumped to 16.2 percent last week from 8.38 percent at the end of June. It fell to 14.66 percent today.
“It’s a lost year for OFZs,” Miklashevsky said. At such levels “many would be looking for opportunities to buy OFZs with the view to the future, but people aren’t queuing for them,” he said.
Not everyone is lowering their ruble outlook. HSBC Holdings Plc, the third most-accurate ruble forecaster in the rankings, is keeping its quarter-end prediction at 59.30.
“The situation in the oil market is very fluid and we have yet to see the full impact of the recent central bank and government measures on the ruble,” Murat Toprak, an HSBC strategist in London, said by e-mail Jan. 7.
While the ruble may weaken to about 65 per dollar, it will then appreciate gradually, RBC Capital Markets analysts Daniel Tenengauzer and Daria Parkhomenko wrote in a note to clients Jan. 8. The currency is 23.8 percent “undervalued” against the dollar, according to RBC.
Bank of Tokyo-Mitsubishi UFJ, which has a forecast of 67.5, says the ruble will remain weak as long asoil prices remain volatile and economic sanctions on Russia continue.
“We believe that it will be difficult for the ruble to mount a sustainable rebound,” said Lee Hardman a London-based currency analyst at the bank, the sixth-best ruble forecaster. “We are not convinced that the measures adopted so far by the Russian authorities will prove successful in stabilizing the ruble.”
original source: http://www.bloomberg.com/news/2015-01-12/top-russian-ruble-forecaster-sees-fresh-run-at-record-low.html