Low oil prices to weigh on Russian growth - BBH

Marc Chandler, Global Head of Currency Strategy at BBH, notes that the ruble continues to outperform.

Key quotes:

"In 2016, RUB rose 20% vs. USD and was behind only BRL (+22%) and followed by ZAR (+13%) and COP (+6%).  So far in 2017, RUB is up 6% YTD and is behind only MXN (+9%), TWD (+7%), and KRW (+6.5%).  Our EM FX model shows the ruble to have STRONG fundamentals, so this year’s outperformance is to be expected."

"The Finance Ministry introduced an FX purchase program back in February.  Officials said the FX purchases were aimed at reducing the impact of oil price fluctuations on the economy and the budget.  The central bank will buy FX when oil is above $40/bbl, and will sell FX when it’s below $40.  Note that the correlation between RUB and Brent oil has been rising recently to almost 0.50.  While down from the high for 2016 above 0.80, the correlation is getting stronger."

"For USD/RUB, a break of the 58.12 area is needed to set up a test of the March 14 high near 59.62.  After that is the December 30 high near 61.72.  Official comments suggest that the desired exchange rate is somewhere near 60."