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June 7, 2016

USD/RUB & Oil correlation fades on Russia CBR interventions, Oil breaks $50.

USD/RUB & Oil correlation fades on Russia CBR interventions, Oil breaks $50.

Russia currency appreciated against US Dollar and European currency on Tuesday after hazy speech of Fed Chair, leaving unclear the prospects of rate hike in coming months.
Additional support was a breakthrough on the energy market where prices finally managed to hold their own above important 50 level.
USD/RUB declined to 64.50 level, though ruble remains undervalued possibly because of aggressive replenishment of foreign reserves by Russian Central bank, and as weak ruble is beneficial for Russian budget. Volatility gauge on the pair remain relatively low, ruling out abrupt strengthening or slack in their pair. Comparing previous periods when Oil was at $50 mark ( start of January and October 2015) correlating rate of the USD/RUB was around 61.00 level


Brent prices hit a high at 51.30/bbl, while WTI climbed above 50$ despite gloomy outlook on OPEC and Iran discord and rebound in US shale industry. Analytical company Baker Hughes which release weekly report called “rig count” (number of working oil wells in US) showed last week that producers powered on 9 more rigs unfreezing production. Many Oil companies saw $50 level for a barrel as crucial for leveling off the energy market and resuming investments in the field.

Risk assets, such as European equities and emerging market currencies soared after Yellen stretched the period of cheap borrowing costs, leaving uncertain the timeframe for next rate hike. Basically Yellen comments reduced June rate hike odds to zero (current futures data shows 1.9% probability or liftoff “in a very extraordinary case”).

European indices such as FTSE 100 and DAX set for a continuos rally as last barrier in the form of strengthening Dollar is now lifted. In Tuesday both gained around 1 percent, Japanese index Nikkei 225 rose 0.6% as well.
Investors do not hurry to mount their bullish positions ahead of fading summer trading and the period of thin liquidity. There are expectations of temporary pullback but with a break of $50 level in Oil prices its time to say commodities entered bullish market so stimulating bets of the Central Banks around the world will be probably reduced very soon.

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