Ruble. Autumn. Foreigners are flying home
Overstayers in the consolidation range of the ruble rushed to the South after the market appeared a Ghost taper-tantrum 2013. Then after the announcement, former fed Chairman Ben Bernanke about the tapering of the American QE currencies of developing countries fell into the abyss on expectations of rising borrowing costs in the United States. The current situation resembles the events of four years ago, after the implementation of tax reforms, the acceleration of us GDP and aggressive monetary restriction by the Federal reserve fraught with the continuation of the rally in rates in the debt market of the USA, the narrowing of spreads of EM bonds with and withdrawal from the market of carry-traders.
The currencies of developing countries do show increased sensitivity to the normalization process of the monetary policy of the fed, believing that the derivatives market is underestimating the chances of three or four increases in the Federal funds rate in 2018. The situation is exacerbated by a potential increase in political risks. Next year in Brazil, Mexico and Russia will pass elections in 2019, the same fate awaits Turkey and South Africa.
In my opinion, the main factors of stabilization of quotations AUD/USD during September-October were attractive real interest rates in the debt market of the Russian Federation, reduced political risk and improved commodity market conditions. At the end of the first decade of November crude oil climbed to the maximum marks for 2.5 years, its correlation with the ruble went down, and received by Russian exporters of «black gold» windfall allowed MOF to increase the volume of daily purchases of foreign currency to replenish foreign exchange reserves, from 3.5 billion to 5.8 billion rubles.
Dynamics of correlation of USD/RUB and oil
Thus, the main source of the woes of the ruble is becoming a mass closing of positions of the carry-traders. The end of the year approaches, EM assets have already brought significant income, it’s time to diversify portfolios. As a result, the yield of local bonds in the background of their sales by non-residents has been steadily increasing since mid-October, the ratio of demand to the actual location at the last auction of government debt fell to its lowest level since July.
Foreigners prefer to flee from the Russian market, for fear introduced in August sanctions. Two of the TOP-5 received the highest capital inflows in 2017 American ETF associated with investments in emerging markets. Distrust Trump has forced U.S. investors to choose assets outside the country. Now faith in the President is growing as the risks of repetition of history with cone-hysteria. It’s time to return home!
However, I don’t think panic will increase. First, the passage of a tax reform through Congress will be delayed. Secondly, five minutes to the new head of the fed Jerome Powell has already expressed the view that the situation in the markets of the EM is controlled. Third, when global GDP accelerated, and the appetite for risk grows, the income assets are in favor.
Technically, the inability of the «bulls» on USD/RUB to storm resistance of 59.95 and 60,35 will demonstrate their weakness.
AUD/USD, daily chart
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