The ruble declined, extending its steepest three-day slump in almost 10 months, after oil traded below $73 a barrel and concern deepened the global economic recovery may slow.
The Russian currency depreciated 2.2 percent to 30.5638 per dollar in Moscow, retreating 4.8 percent in three days to the lowest since Sept. 16. Crude slipped as much as 1.4 percent to $72.54 a barrel in New York.
Russia is headed for its first economic contraction in a decade this year after the global financial crisis cut demand for commodities, the country’s main source of export revenue. Finance Minister Alexei Kudrin said the country remained a “weak link” in global finance and that the economy still isn’t strong enough to continue attracting investment when the U.S. and Europe start raising interest rates.
“Market is very nervous and a lot of participants have view that this ruble risk aversion can be continued,” said Luis Costa, an emerging-market debt strategist at Commerzbank AG in London. “Russian capital flows continue to be extremely linked to global stocks sentiment. A break in this cycle can easily bring the ruble down a lot once again.”
The extra yield investors demand to own Russia’s bonds instead of U.S. Treasuries rose the most in more than a week, adding 15 basis points to 2.36 percentage points, according to JPMorgan Chase & Co.’s EMBI+ Index.
Russia’s 30-stock Micex Index fell for a second day, losing 0.8 percent. The MSCI Emerging Markets Index of 22 developing nations posted its longest losing streak in five weeks, after rating companies highlighted the risk of government deficits and U.S. Federal Reserve Chairman Ben Bernanke said the world’s largest economy faces “formidable headwinds.”
Unexpected Drop
A report today showed German industrial output unexpectedly fell for the first time in three months in October.
The ruble has climbed 15 percent in 10 months and the 30- stock Micex Index has more than doubled this year as signs of global economic recovery sent commodity prices higher, boosting the income outlook for producers.
A stronger U.S. dollar and a reversal of fund inflows out of commodity markets are among the key risks that may halt a rally in raw-material prices, JPMorgan analysts led by Adrian Mowat wrote in a report. The downgraded their recommendation on the country’s equity market, the world’s best performer this year.
The ruble weakened 35 percent against the dollar between August 2008 and January as Bank Rossii undertook its “gradual devaluation” to support the country’s exporters amid falling commodity prices. The currency has regained 26 percent of its value between February and Nov. 11, when the ruble hit 28.6613 against the dollar, its strongest level this year, as the oil price doubled in the same period.
‘Proxy for Risk’
Russia’s currency is a “proxy for risk” more so than most other currencies in the region because of the economy’s reliance on commodity prices, leaving the ruble vulnerable to investor perception swings, according to Ivan Tchakarov, an economist at Nomura Holdings Inc. in London.
Investors increased bets that the ruble will decline further, with non-deliverable forwards showing the currency at 30.77 per dollar in three months, from an NDF of 30.38 on Dec. 7. The contracts are a guide to expectations of currency movements as they allow foreign investors and companies to fix the exchange rate at a particular level in the future.
The ruble declined 1.8 percent to 45.0864 per euro today, the weakest since Sept. 16. The movements against the dollar and the euro left the ruble at 37.0957 against the central bank’s target currency basket, which is used to manage swings that hurt Russian exporters.
The basket is calculated by multiplying the dollar’s rate to the ruble by 0.55, the euro to ruble rate by 0.45, then adding them together. The ruble remains within the 26 to 41 band the central bank pledged Jan. 22 to defend.
