Rouble Hits 2-Week High vs Dollar After Kremlin Reveals Sanctions 'Hedge'

The rouble strengthened to a near two-week high past 76 against the dollar on Wednesday after the Kremlin said Russia had plans in place to hedge against possible U.S. sanctions, threatened should Russia invade neighbouring Ukraine.

Russian Rouble
Russian Rouble Pixabay

The rouble is moving away from a near 15-month low of 80.4125 versus the greenback hit last week when it was battered by concerns that Russia plans to invade neighbouring Ukraine, something Moscow has repeatedly denied. Russian markets remain highly volatile.

The rouble, already firming on the day, jumped after the Kremlin said that despite concerns over the United States' "unpredictable" behaviour, plans were in place to hedge against possible sanctions and to minimise their consequences.

By 1129 GMT, the rouble was 1.1% stronger against the dollar at 75.98, its strongest since Jan. 19. It had gained 0.6% versus the euro at 85.96, earlier touching its strongest mark in almost three weeks.

Russian President Vladimir Putin on Tuesday showed no sign of backing down from security demands Russia has made, accusing the West of deliberately creating a scenario designed to lure Russia into war and ignoring its security concerns over Ukraine, after Moscow and Washington's top diplomats held talks.

"On the geopolitical front, the market takes heart from the continuing negotiations, but risk remains," said BCS Global Markets in a note. "Optimism will likely be capped until concrete moves are made."

US Banknotes
WASHINGTON D.C., March 20, 2020 (Xinhua) -- Photo taken on March 19, 2020 shows US dollar banknotes in Washington DC, the United States. The Trump administration's plan to send Americans relief money as part of a massive stimulus package in response to COVID-19 could be 1,000 U.S. dollars per person, and 500 dollars per child, Treasury Secretary Steven Mnuchin said Thursday Xinhua/Liu Jie/IANS

Once fears of a military conflict fade, the rouble could firm to 70-72 to the dollar later this year, Renaissance Capital said.

In a sign that market sentiment was normalising, the finance ministry resumed weekly OFZ government bond auctions this week after cancelling them for the past two weeks amid the rouble crash.

The finance ministry raised 74.7 billion roubles ($982 million) at a single auction on Wednesday, while demand reached almost 103 billion roubles.

Expectations of a rate hike by the central bank next week are also positive for the rouble's short-term prospects, said Dmitry Polevoy, head of investment at Locko Invest.

Analysts polled by Reuters expect the bank to raise its key interest rate by 100 basis points to 9.5% on Feb. 11, to combat stubbornly high inflation.

Brent crude oil, a global benchmark for Russia's main export, was down 0.3% at $88.88 a barrel, but hovering near levels last seen in late 2014.

Russian stock indexes were mixed.

The dollar-denominated RTS index was up 0.7% to 1,468.0 points. The rouble-based MOEX Russian index was 0.2% lower at 3,540.7 points, edging away from a more than two-week high of 3,584.71, hit in the previous session. ($1 = 76.0720 roubles)