RUB: Vulnerable to deterioration in risk sentiment – Deutsche Bank

RUB is vulnerable, if markets re-enter a risk-off phase as it appears exposed on both the ‘internal’ and ‘external’ dimensions, according to the research team at Deutsche Bank.

Key Quotes

“Internally, RUB has been the best performer in EM since the US elections and positioning is significantly long, both in FX (IMM shows that net long positioning is still near historical highs) and in bonds, raising the risk of ‘payback’ depreciation and position squaring. It is also overvalued on fundamentals. Externally, RUB has the highest beta to commodities and a relatively high beta to US rates, thus exposing it to two key near-term sources of risk for EM.”

“Moreover, Russia’s balance-of-payments dynamic tends to weaken in Q2 and Q3, which generally leads to worse FX performance than in Q1. We expect the current account to weaken due to import seasonality and a pickup in domestic demand. Dividend payments and foreign travel-related seasonal demand for FX will also likely weigh on the currency in the coming months.”