The ruble declined the most among peers in Europe, the Middle East and Africa, succumbing to retreating oil and pressure on emerging markets from the prospect of a Federal Reserve interest-rate increase.
The Russian currency weakened for a second day, falling 1 percent to 66.64 against the dollar by 12:35 p.m in Moscow. Brent crude, the benchmark for pricing the country’s export staple, fell 2 percent after U.S. stockpiles unexpectedly increased. That weighed on appetite already depressed by hawkish statements from Fed officials suggesting higher borrowing costs are possible next month.
The Russian currency’s two-day retreat this week interrupts a rally that has continued through the year, making it the strongest performer among emerging-market peers over the last three months, largely reflecting a rebound in energy markets from 12-year lows in January. The median forecast of 45 strategists surveyed by Bloomberg is for the currency to weaken to 67 per dollar through the second half of 2016.
“Investors have been scared off by oil’s retreat and the Fed’s rhetoric,” said Alexei Egorov, an analyst at Moscow-based Promsvyazbank PJSC, which is among the most bullish forecasters in the survey. ”The ruble can strengthen to 63 after investors weigh the Fed comments and oil recovers. At current oil prices, the ruble should be at about 63.”
Egorov said exporters converting dollars into rubles in order to pay monthly tax bills had lessened some of the currency’s fall. About 620 billion rubles ($9.3 billion) in taxes come due from May 25 until the end of the month, according to Sberbank CIB.
Russian five-year sovereign bonds fell for a third day, lifting the yield five basis points to 9.19 percent. The Micex equities index declined 0.9 percent. VanEck Vectors Russia ETF had $6.89 million outflows on May 18, according to data compiled by Bloomberg.