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Macro and Vol Commentary 

The ruble has had a strong week following the 50bp increase of the key interest rate to 5%. Can this momentum be maintained?

Russian Economic Data

  • Manufacturing PMI was 51.1 in April, marginally lower than 51.5. New orders and output have increased. However, export orders were weaker, which added headwinds to the reading.
    • Business sentiment was improving, and this will enhance the investment outlook.
  • Services and composite PMIs were more robust in March, expanding to 55.8 and 54.6, respectively. The sentiment is improving, outlined but the expansionary readings and also trend in recent months.
  • The unemployment rate is declining, falling to 5.4% as of April, down from 5.6% the month prior. The longer-term trend is encouraging when you factor in unemployment was at 6.3% in October 2020.
    • Construction, manufacturing, and retail were three sectors that saw large amounts of unemployment, as in December 2020, nearly 500,000 jobs in those areas. However, we expect employment in these areas to recover sufficiently, particularly in construction and manufacturing, as the economy re-opens.
    • Retail sales declined in March on a year-on-year basis by -3.4%y/y, but real wages were better for the month of February at 2% y/y. Russia’s impact from the virus was slightly behind Europe, and we expect figures to reflect that in the near term.
    • Construction has shown signs of improving, gaining 0.4%y/y, but growth remains slow.
  • Inflation overshot the target rate by 1.8%, with March’s reading at 5.8%.
    • Weekly CPI YTD was 2.5%, with CPI w/w for April 19th at 0.2%.
    • The higher rate of inflation is something we continue to watch, and the rate hike caught traders off guard. Inflation remains high, and while higher rates will improve the situation, expectations remain high, and some of the long term drivers suggest higher inflation rates.
  • The growth outlook is improving, but it remains uneven. GDP in Q4 was -1.8% y/y, with annual GDP at -35 y/y
    • Manufacturing, in particular, has shown strong signs of recovery; cargo shipments and industrial production are growing as well at 3.9% y/y, 1.1% y/y in March, respectively.
    • Mining output, market services, and retail sales are all areas that are lagging in other datasets, but we expect this to show improvements in the next few months.
  • Russia nearly doubles their borrowing last year, with higher rates; we expect spending to decline in 2021. Debt could be more than 20% of GDP this year, as Putin looks to support the economy following the pandemic.
  • The spending plan will include infrastructure, boost investment and welfare.
  • Another threat is the Sanctions from President Biden, who has restricted new debt issued by the Russian central bank.

Monetary Policy

  • Interest rates have been tightening as the bank try to cap inflation; we saw 50bps in April, which superseded 25bp in March. There is an expectation that rates will continue to rise
  • The bank remains hawkish but has highlighted the inflation risk, significantly as domestic demand will be improving.
  • Russia has sold 20.9998bn Rubles 2035 OFZ bonds.

Russia looks to reduce its exposure to the dollar has continued, the share of exports sold in dollar declined to less than 50%, with the Euros share increasing to 36% for Q4 2020. Tightening monetary policy will reduce pressure on inflation, but some long-term indicators suggest higher inflation. Export orders will continue to improve, with oil demand. Sanctions continue to threaten the economy, but Putin has options to keep spending high. We expect the Rubles to continue to strengthen in the near term despite sanctions, but the meeting with the US over Iran is a risk to the currency. The dollar has weakened in recent weeks, and we expect this to continue. We could see some dollar strength following the meeting if relations continue to deteriorate and sanctions increase. However, we favour selling USDRUB above 78, with the recent March low at 72 the critical level on the upside for the RUB.

Volatility Commentary 

Over the last few months, we have seen USDRUB Vols consistently realising below implied even during the Macro risk-off moves during the end of Feb/beginning of March. With the Russian economy showing tentative improvement and the US economy re-opening too we expect this trend in the short term to continue and favour slight short USDRUB gamma/vol positions on this. Doing so though we’d be keeping an eye on future Russian inflation/Central Bank action and potential further sanctions on Russia from President Biden (though we expect that to be partially already priced in with US sanctions on Russia being a near-permanent feature of their relationship).

USDRUB 1-month Realised and Implied Volatility

USDRUB Trade Idea 

  • Sell two month expiry ATM straddle for circa 13.30 vols and delta hedge short vega/gamma position
  • Pricing in 10m USDRUB a leg (20m total) gives a total of circa 34k USD vega
  • Note this strategy is only suitable for investors capable of maintaining and delta hedging a short gamma position

Positioning Charts

USDBRL NDO Positioning Data 22/04/2021 - 28/04/2021

Positioning data shows a mixed outlook for BRL in the coming weeks. Chart 1 shows hows a mixed outlook but a preference for downside puts. There are three clear strips all of similar notional which suggest hedging and popular expiries. However, in Chart 2 there is still a favourable outlook on the downside but there is more upside coverage. There is a large call option for immediate expiry but the next call is due to expire in June.  as mentioned options executed favour the downside but the market fails to break out of the longer-term range. 

USDBRL NDO Positioning Data 28/04/2021 - 05/05/2021

USDCNY Vanilla Positioning Data 22/04/2021 - 28/04/2021

Volumes traded were thin due to China being on holiday this week. There is little upside cover at the moment with a small cluster of call options due for expiry in the near term, there is one large option due for expiry above the market at 6.68. Downside cover is stronger, but thinner than previous weeks, with China on holiday until Thursday, we expect little movement in the currency. 

USDCNY Vanilla Positioning Data 28/04/2021 - 05/05/2021

USDRUB Vanilla Positioning Data 05/03/2021 - 05/04/2021

Options executed in the month to May 5th, are more concentrated than the previous month. There is still a downside bias. Limited call options have been executed near the market, but there is some cover above 80 in May. Put options executed continue to cluster around 75 but option volumes are thinner. We expect the market to trend lower in the near term. 

USDRUB Vanilla Positioning Data  05/04/2021 - 05/05/2021

Charts and Tables

FX Expiries

Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change

Key Events & Releases

Technical Charts

JP Morgan Global FX Volatility Index

The index has improved in recent sessions and has breached resistance at 7.20, and now stands at 7.22. The stochastics are falling and are in overbought as the MACD diff is positive and converging, suggesting we could see the index push lower in the near term. The index needs to hold above 7.20 before targeting 7.40. The reaffirmation of near term trend support and 100 DMA at 7.21 suggests we could see the market push higher. On the downside, rejection above 7.35 could trigger a break of support at 7.10. We expect the index to struggle to maintain support above 7.20 and to retreat in the near term.

Dollar Index

The dollar index has been gaining in the recent sessions, prompting a breach of resistance at 50 DMA. The market has tested long term resistance at 100 DMA and has rejected this level. The bearish engulfing candle and the selling signal from the stochastics and MACD diff is negative and diverging suggests that we could see the index break back through the 50 DMA at 90.95, with a downside target of 90.5 in the near term. On the upside, if support around the moving averages holds firm, this could trigger gains back through trend resistance and target 91.50. The most recent candle and indicators suggest we could see the index decline in the near term.


USDRUB has been well supported in the last sessions of March despite the dollar weakening, however lack of appetite above 75.3 has triggered a retracement. The stochastics are falling, with %K entering the oversold, and the MACD diff is converging on the downside, suggesting waning buying pressure. Further price weakness in May and weakening indicators point to a further fall in prices down to 74.50 before the recent lows of 74.20. We could see the market retreat towards the lower trend channel but expect this level to hold firm and keep the trend intact. On the upside, if prices cross above the 200 DMA at 75.18, we could see some upside potential. The 50 DMA is edging down, about to cross 200 DMA, capping prices on the upside. We expect a correction to persist in the near term.  



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