Between oil prices and political uncertainty, foreign capital is pouring out of the Russian currency and, by extension, ruble-denominated assets.
At this morning’s exchange rate of 30.3 to the dollar, the ruble has now weakened almost 10% during the last month, putting it roughly back where it was at the beginning of 2011.
With next year’s presidential elections still an open question, the big accounts are pulling out a lot of money from Moscow until they know who is running and what issues will be in play.
Deflating oil prices have not helped. Roughly 17% of the Russian economy is driven by energy exports, so the slide in crude markets has driven more opportunistic traders from the ruble as well.
The forex gurus at Paribas expect to see a net $45 billion in foreign capital flow out of ruble assets by the end of the year, which would leave Moscow hungrier for liquidity than ever.
As it is, Russian bond yields have crawled back to 19-month highs as issuers struggle to attract investors by offering richer interest payments.
The next technical level to watch on the ruble is 31.50, which we haven’t seen since June 2010.
If the Russian currency weakens beyond that point, the chart points upward all the way back to May 2009, when markets were rebounding from the extreme credit crash conditions and it took 32.6 rubles to buy a dollar.
Currency flows often foreshadow equity market flows, so more weakness for the currency fund XRU (quote) could indicate tough sledding for Moscow equity funds like RSX (quote):