Going the Other Way

Even while newspaper headlines are still full about the ruble's panic sell-off last week, the ruble has actually risen by 39% from last week's intra-day lows near 80 to the dollar over the past five trading days (1 ruble was 0.0125 dollars at one point on December 16, while at the time of writing early on Monday, 1 ruble was 0.0174 dollars. That is an increase in the currency's value of more than 39%). In the traditional notation USDRUB it's a decline from 80 to 57.48. In early trading on Monday, the ruble has moved back to the level it inhabited on December 5. Anyone shorting the ruble between December 5 and December 16 or selling his rubles for foreign currency during this time period is now deeply underwater:

The Russian ruble goes the other way – click to enlarge.

Incidentally, crude oil prices have begun to trade slightly firmer as well, in spite of a continuation of the barrage of ostensibly bearish news (such as this report about Saudi Arabia swearing up and down it won't cut production).

However, both Brent and WTI are only back near the upper end of last week's volatile trading range, which is a far cry from the extent of the ruble's rebound. This makes it all the more likely that the selling squall in the ruble was indeed caused by traders front-running Rosneft's debt payment.

Brent crude, February contract over the past week – click to enlarge.

Last week we compared the panic selling in the ruble to the panic in the South African rand in 2001. We could also have used other examples, such as the sell-off in Asian currencies like the South Korean won or the Indonesian rupiah in 1997-1998. The point remains that such panic sell-offs almost always turn out to be buying opportunities in hindsight. The louder the screaming of the headlines in the press, the more likely this will turn out to be the case.

When the ruble gained on Friday allegedly on “verbal support” and “expectations that exporters would sell dollars” (there were no such expectations three days earlier?), it was still widely expected that the currency would “remain under pressure going into the weekend” due to a “frenzy of retail FX buying”. The weekend has passed and the ruble has kept gaining ground. After all, short term ruble interest rates are now at almost 18% and as we noted last week, money supply growth in Russia has been slowing sharply in recent years. It seems also possible that some of those retail traders have realized that nearly every Russian FX buyer over the month of December is by now nursing losses.