The currency of the world’s biggest energy exporter is finally doing what it’s supposed to be doing: rallying with the price of oil.
The ruble was the biggest gainer in the world on Thursday as it played catch-up with Brent crude’s surge above $77 a barrel following a national holiday. Oil had lost so much force as a driver for the currency that the 60-day correlation between the two assets has dropped to almost zero.
Thursday’s rally doesn’t necessarily mean the historic bond between the ruble and oil is making a more permanent come-back though. Investors are still wary of piling back into the ruble after being caught out holding overweight positions when the U.S. extended sanctions last month, and a recent rally in the dollar is keeping all developing-nation currencies in check.
Russia’s government also has a policy of buying foreign currency for its sovereign wealth fund when oil is above $40, which shields the exchange rate from excessive strength.
Yerlan Syzdykov, co-head of EM fixed income at Amundi SA, said in a research note last week that while fundamentals “look solid” for the ruble, it will remain a shock absorber of political risk, putting fair value at 61-62 versus the dollar. Thursday’s 2.3 percent jump took the currency to 61.75.
“We are witnessing a modest respite for emerging currencies following the recent rout,” Piotr Matys, a strategist at Rabobank in London, said on Thursday. “The ruble and its EM peers should struggle to regain their bullish momentum.”
— With assistance by Dina Khrennikova, Ksenia Galouchko, and Paul Abelsky