Oil Below $80 Hits Rouble, Naira; Politics Weighs on Ukraine

A renewed downward lurch in oil prices put emerging market commodity currencies under more pressure on Thursday, with Russia’s rouble facing additional headwinds from a flare-up in tensions with Ukraine. As Brent crude dropped through $80 and Ukraine deployed troops amid fears of a new separatist offensive in the country’s east, the rouble sank more than 1.5 percent against the dollar. “There is a risk of oil prices dropping further and the geopolitical risk is making the market demand a premium (on Russian assets),” said Tatiana Orlova, senior Russia economist at RBS. Ukraine’s hryvnia is also near record lows, with the central bank raising interest rates by 150 basis points to 14 percent on Wednesday in defence of the currency. The hryvnia rose marginally at the central bank’s auction on Thursday to 15.54 per dollar.

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Ukrainian debt insurance costs are just off five-year highs hit on Wednesday, with five-year credit-default-swaps at 1,470 basis points, according to financial data provider Markit. “The central bank is trying to use all possible tools to stem the hryvnia depreciation but… at the end of the day it’s down to the lack of hard currency receipts. (Investment) has dropped and regions affected by hostilities are not exporting in the same volume,” Orlova said. One Kiev-based trader said there was no hard currency on the market at all and bank clients were clamouring for dollars. “You can’t really call this a market.

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There is at best 1-2 banks that are able to sell dollars,” he said. Among commodity currencies, South Africa’s rand weakened against the dollar as investors braced for data expected to show falling output in the mining sector. Nigeria’s naira fell hard for a fourth consecutive day, down 1.7 percent, as central bank interventions this week failed to distract investors from plunging oil prices, violence and messy pre-election politics. Oil’s fall also hit Gulf markets, with Saudi shares down 0.5 percent, while the petrochemical index fell 0.7 percent. In contrast, weaker oil prices benefit Turkey, which posted narrower-than-expected current account deficit figures, pushing the lira a quarter percent higher Broader emerging shares held their ground to trade near flat despite weak Chinese data, as a planned linkup between the Shanghai and Hong Kong markets kept Chinese markets firm.