US presidential elections could lead to collapse of ruble

Baku. 27 October. REPORT.AZ/ "These are interesting times for the Russian rouble". Former Research Analyst at JPMorgan Securities Plc Nadia Kazakova said. On the surface, the currency is doing well. It has appreciated by over 20% against dollar since the start of the year on rising oil prices, high interest rates and, more recently, subdued volatility. For the oil bulls, the Russian currency might be a good leveraged bet on the further rise of the oil price

In a low-yield world, it all must look a bit like a sweet shop for investors/speculators. It is not surprising that the leveraged money managers are piling into the long contracts on ruble. As of October 18, hedge funds accounted for 65% of total contracts (open interest) and over 75% of total long positions.

There is a visible correlation between changes in net long positions and moves in the USDRUB rate. A reverse in the build-up of long ruble exposure is bound to hit the ruble. A wobble in the oil price and/or a deterioration in the Russian already precarious geopolitical position could easily trigger unwinding of the long ruble interest.

In my view, the US elections could be a catalyst. A Hillary Clinton win could mean a tougher stance on Russia.

In addition, this year, around $17 billion in principal and interest would need to be paid.
Unlike in other months, when intra-company loans are rolled over and reduce factual repayments substantially, the central bank expects quite a high level of actual repayments in Q4 2016. It estimated that some $21.6 billion out of $23 billion would be called in.

There is also a more fundamental problem with the ruble. At the current FX rates, imports of goods have started to rise, up 4.6% y/y in Q3 2016. With the Urals oil price at $43.70/barrel in Q3, the trade balance shrank to just over $19 billion, while the current account (after paying for imported services and other sundries) was a mere $1.9 billion. It is a very narrow margin, given that Russia needs to repay/roll over over $20 billion of debt a quarter.

Of course, the Russian central bank is still sitting on $391 billion of FX reserves (as of October 14). Those reserves, though, are hawk-eyed at the highest political level and might not be deployed as safety net for the rouble, if times turn tough.

Analytical group of Report believes, if Trump will be elected ruble will strengthen initially, and then drop rapidly.The exchange rate of the dollar in Russia by the end of the year can reach 70.0 RUB / USD and in 2017 - 100.0 RUB/USD.