Ruble Swings With Oil as Traders Brace for Fed Rates Liftoff – Bloomberg

The ruble strengthened for the first time in three days and Russian bonds rose with stocks as a selloff in crude abated.

The currency gained 0.8 percent to advance to 70.043 as of 6:43 p.m. in Moscow. It earlier slumped as much as 0.7 percent toward its weakest-ever close and is down to 5.1 percent this month. Brent crude, which is used to price Russia's main export blend, slumped 1 percent before erasing declines and rallying 1.7 percent. Stocks rose the most in three weeks and the yield on five-year bonds dropped from a two-month high.

Russian assets rebounded as Brent crude ended a seven-day slide and other emerging markets advanced, paring this month's declines as investors braced for the Federal Reserve to end an era of near-zero interest rates as early as Wednesday. Russia, the world's biggest energy exporter, is in its deepest recession since 2009 after oil prices sank and U.S. and European Union sanctions shuttered foreign capital markets as punishment for Russia's role in the Ukraine crisis.

“The nervousness will increase as the Fed decision approaches,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said in e-mailed comments. “Tomorrow the Fed's tone after the decision will show whether the ruble has finally hit the bottom or is breaking through it and heading lower.”

Miklashevsky sees the currency weakening to 71.90 in a month's time.

Fed Bets

Domestic challenges mean Russia is one of the countries most at risk from a liftoff in U.S. rates, according to Moody's Investors Service. Traders see a 76 percent probability of the first rate increase in almost a decade on Wednesday, futures contracts show.

The Micex index of stocks rose 1.9 percent to 1,740.79, while bonds climbed, reducing the yield on five-year government bonds two basis points to 10.25 percent.

The ruble's “dynamics are fully driven by external factors, such as oil and global emerging-market risk appetite,” VTB Capital analysts Maxim Korovin and Tatiana Chernyavskaya said in an e-mailed note. “Volatility is likely to remain in the near term.”