Volatile Ruble Trims Losses in Intraday Trading

On Monday, trading was volatile in Moscow, but the Russian rouble was able to trim some of its early losses, as the country appeared to be on the verge of its first sovereign default in over a century. The deadline for payment expired and the West said that more sanctions would be incoming against Moscow due to its invasion of Ukraine.

Default rejected by the Kremlin

Interest payments worth $100 million had been due on May 27th, but bondholders are granted a 30-day grace period, which ended on Sunday. On Monday, the Kremlin rejected the default as it claimed to have made the payment, while Western clearing houses were blamed by the finance ministry in Russia.

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The country has long stated that it has the funds to pay and said that the default was an artificial one because foreign bondholders could not receive the payment due to the sanctions imposed against it.

The rouble rises

The Russian rouble had strengthened by 0.3% against the US dollar by 1107 GMT, as it trimmed losses after it had declined as much as 2% to reach its weakest value at 54.4975 since June 21st. It was now trading at a value of 53.23.

It is expected that the Russian currency will stay in the 50-55 range against the US dollar in the next few weeks and analysts expect it to be close to the lower boundary. The rouble had declined against the euro in early trading to reach 57.3375, but it managed to trim its early losses to gain 0.2% and was trading at 55.96.

The rouble has become the best performing currency amongst others this year because of a fall in the country’s imports, the high proceeds earned from commodity exports, and ban imposed on households in terms of withdrawal of foreign exchange. However, export-focused companies suffer because of a stronger rouble and this can stress the economy, as harsh sanctions are tipping it into recession.

On Tuesday, a new package of sanctions will be announced by the Group of Seven rich countries, which are meant to increase pressure on the country over its invasion of Ukraine. According to analysts, this could put downward pressure on the rouble.

Tax payments

The rouble has had support from the capital controls that were implemented in Russia and this helped the currency hit its highest level in seven years on June 22nd. There will also be additional short-term support, as the tax period is coming to an end, which means export companies will have to convert their euro and dollar revenues into roubles.

Last week did not see any increase in currency sales by exporters, which means two things. They could have left the currency conversion process until the eleventh hour, which would strengthen the rouble. It is also possible that the companies may have already stockpiled the rouble they need.

Meanwhile, Russian stock indexes firmed during the day, as there was a 0.6% and 0.7% climb in the MOEX Russian index and RTS index, the latter being dollar-based.

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