Ruble Heading Higher After Surprise Rate Hike; Canadian Dollar Upside Limited, Warns MUFG

The Russian ruble climbed to a nine-day high on Friday after the Russian central bank surprised markets with a 25-basis-point increase in interest rates. In other news, MUFG are reminding traders not to expect too much from the Canadian dollar upon a US-Canada trade deal, which draws closer.

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The Russian ruble was one of only a few currencies to gain against the US dollar on Friday. The ruble climbed 1.3 percent to a nine-day high of 67.50 to the dollar, before weakening marginally to 68 late in the European session.

Russia’s central bank unexpectedly increased its benchmark lending rate to 7.5 percent, from 7.25 percent, in order to counter a recent jump in inflation and to shore up a currency that tumbled earlier in the week to seventeen-month lows. The ruble has now strengthened nearly 5 percent since Monday’s USD/RUB extreme of 70.637.

The governor of Russia’s central bank, Elvira Nabiullina, indicated on Friday that a 625-basis-point increase in Turkish interest rates twenty-four hours earlier played a large part in the bank’s decision to hike for the first time since 2014.

Reasons for investors to swerve the ruble this year have been many, and include hefty US sanctions as well as political pressure for lower interest rates in Russia which, if enacted, might boost growth sufficiently to meet and pay for President Putin’s ambitious growth and spending targets.

“We hope this [rate hike] will make investors’ attitudes to emerging markets more positive,” Governor Nabiullina said on Friday.

The ruble remains down 15 percent this year but is likely to gain traction from here, at least according to Russian Economic Development Minister Maksim Oreshkin, who predicted on Tuesday that the ruble would average 63 to the dollar in 2019.

In other news, with this week’s breakthrough in US-Canada trade negotiations, which apparently includes US access to Canada’s dairy industry, MUFG is warning traders against looking for much in the way of Canadian dollar upside.

With the loonie already outperforming since July, this suggests to MUFG that “the market is more positioned for a deal being reached.” The Japanese bank, therefore, “wouldn’t expect a huge move in CAD; in fact, the broader market reaction [to a deal] would likely be relatively contained.”

Like all G10 currencies, the Canadian dollar weakened relative to the US dollar on Friday, giving up roughly 0.4 percent to trade at 1.305. The loonie did, however, gain marginally against the euro, which at the time of writing was buying 1.518 CAD.



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