Ruble Extends Declines as Local, Offshore Markets Disconnect

(Bloomberg) -- The ruble extended declines as the conflict in Ukraine intensified and investors weighed the impact of tough economic sanctions on Russia.

The ruble weakened 5.2% to 99.8000 per dollar at 4:57 p.m. in Moscow trading Tuesday, adding to its worst plunge on record the previous day. In offshore markets, the Russian currency gained 0.3% to 105.0156.

The price of rubles quoted in Moscow and in international markets have become disconnected and underscore how trading is being upended as investors rush to sell. Russia banned residents from transferring foreign currency abroad and the central bank slapped a temporary freeze on sales of Russian securities by foreigners, closing the exits for tens of billions of dollars, in response to the sanctions.

“There is no domestic market that is currently accessible by foreigners, and locals cannot trade in the foreign markets,” said Cristian Maggio, the firm's London-based head of portfolio strategy at TD Securities.

The indicative bid-ask spread for the dollar-ruble exchange rate was the widest since at least the start of November, according to data compiled by Bloomberg. The cost of hedging against losses in the Russian currency rose to an all-time high, according to one-month risk reversals.

“I don't think investors are in a panic now, but they were shocked yesterday,” said George Vaschenko, head of the Russian stock-market operations department at Freedom Finance. With margin trades prohibited, volumes are low, he said.

“The central bank controls the market, and won't let the ruble fall sharply,” Vaschenko said. “Foreign investors can't sell assets, so they can't buy lots of international currency, exporters are obliged to sell 80% of their revenue on the market. This all supports the ruble.”

Russian Markets Start to Look Uninvestable as Sanctions Bite

With Russia keeping its local stock exchange closed for a second day, foreign-listed shares in Russian companies tumbled again on Tuesday, in an indication of how they may react to sanctions when local trading reopens. The nation plans to deploy as much as $10 billion from its sovereign wealth fund to buy up battered local stocks.

While Russia and Ukraine have agreed to continue talks aimed at ending the war, Maggio said, “I'm not sure peace will happen soon, and thus I'm not so convinced the ruble has space to recover for now. I'm inclined to believe that more weakness is in store.”

Story Link: Ruble Halts Record Slide as Local, Offshore Markets Disconnect