Oil up, OFZ yield close to multi-month highs ahead of CBR SD

MOSCOW, July 18 (Reuters) – The ruble held a marginal edge on Tuesday evening, helped by rising oil prices and expectations of a monetary policy tightening by the central bank.

Currently, this outweighs the negative impact of local real demand for foreign currency, which is largely created by Russian importers, but in the evening, the traditional, recently safe overnight positioning may also work against the ruble, eating up some of the already rather modest gains of the Russian currency during the session.

At 17.35 Moscow time, the dollar/ruble pair was at 90.85 with calculations “for tomorrow”, here the ruble gains almost 0.2%.

The euro/ruble exchange rate was close to its previous closing level of 102.12 at the time.

In the morning, the ruble reached its lowest value against the euro since March last year, 102.61. Today’s dynamics of this pair were largely determined by changes in the currency market – the rise of the euro to new multi-month highs, and then a pullback.

The ruble gained 0.3% against the yuan, the quote is close to 12.64.

Support for the ruble from Russian exporters could gradually increase over the next few weeks, given the unified payment of the July 28 tax, including the MET, where commodity companies typically increase sales of export earnings.

“Companies have to pay taxes next week and exporters should increase foreign exchange sales day by day,” said Alexei Antonov of Alor Broker.

According to Reuters calculations, the minerals extraction tax for crude oil in June 2023 increased by 2,515 rubles per ton (+14.0%) compared to May, reaching the maximum value since July last year, 13,274 rubles per ton.

On foreign markets, crude oil is actively rising in the evening and currently a barrel of Brent is valued at USD 79.38 (+1.1%).

Oil is recovering from a 1.5% drop the previous day triggered by weak Chinese statistics, and the current support is expected to reduce US oil and petroleum product prices. Industry data will be released late in the evening, official tomorrow at 17.30 Moscow time.

In the forex market, the dollar index is trading near a 15-month low of 99.57, which was reached last Friday due to expectations of an early end to the Fed’s tightening cycle, largely driven by poor US inflation figures for June.

The dollar is currently trading at 99.88 for a basket of six currencies from 99.90 at Monday’s close.

The price of the euro/dollar pair is at $1.1232, which is close to last Monday’s trading, peaking at $1.1275 since February 28 last year.

Global markets expect the Fed to raise the dollar rate next week, but this is now expected to be the final stage in the current monetary policy tightening cycle, while the European Central Bank is expected to raise the euro rate multiple times.

In turn, Russian markets are waiting for an increase in the key CBR rate after Friday’s results of the Board of Directors of the Bank of Russia against the background of inflation risk and rising inflation expectations of the population, and some analysts allow a non-standard increase by a significant amount.

“The current consensus of analysts is to raise the CBR rate to 8.0%, by 50 bps, but taking into account the latest data, the CBR may raise the rate to 8.25%-8.50%,” believes Dmitry Monastyrshin from Promsvyazbank.

Formally, this is supposed to support the domestic currency, but at the same time it works against the ruble public debt market, where the profitability of many government securities has reached its maximum since autumn last year.

Expectations regarding tomorrow’s OFZ auctions may also put pressure on government securities. On Wednesday, the Ministry of Finance will offer unlimited classic papers PD-26241 and inflation papers IN-52005.

(Moscow office)