Sanction fears might weaken the RUB – TDS

The rouble has underperformed the majors and other EM currencies for the second consecutive day and, according to the FX Strategy team at TD Securities, fears of international sanctions to Russia might accelerate the currency’s downtrend.

Key quotes

“Selling pressure has intensified today, however, as investors speculate that the US administration may sanction Russia over allegedly putting a bounty on US and UK troops deployed in Afghanistan.”

“The ruble sell-off comes at a time of rising concerns over a second wave in the COVID-19 pandemic that may afflict several countries, including parts of the US. Also, the RUB seems exposed to intensifying headwinds from a possible failure of OPEC+ and Russia to negotiate an extension of oil output cuts. A return to full-production would likely induce declines in crude oil prices, all rest being equal, penalizing RUB among other oil-related currencies.”

“We think RUB is likely to remain under pressure for now, idiosyncratically driven by sanction risks. As in the April 2018 episode, sanctions may weigh weakness up to a total 10% from a starting USDRUB level of around 70.”