FX rate likely becoming secondary to domestic public attention

FX rate likely becoming secondary to domestic public attention



14 квітня 2015 года
ICU

For the second consecutive year, the run-up to the upcoming period of two national holidays - Labor Day on May 1 and Victory Day on May 9 - is characterized by market uncertainty. Last year, Russian militant strongholds in the eastern regions marked the launch of the Donbas war. This year, given the ongoing standoff between Ukraine and Russia at Donbas, a possible new offensive by the pro-Kremlin militants and collapse of the Minsk II agreement continues to be a threat. This is unfounded as Russian assets--from Eurobonds to the ruble--rallied recently, indicating that investors believe that Minsk II is holding successfully. Bloomberg reports that US hedge funds have been buying Russian assets which we believe were extremely undervalued before the rally. Such an immediate disregard of prolonged high geopolitical risk overshadowed by a recent market rally is strikingly controversial. In either regard, the hryvnia's FX rate is less likely to dominate market headline news over the next few weeks than are developments of the sovereign debt restructuring. While the restructuring should be settled by the second IMF program review this June, market consensus is that the negotiations are unlikely to proceed smoothly. The IMF itself said it would not insist on rushing to complete talks by this June and will assist Ukrainian authorities in gradually restoring FX reserves. On top of this, the recent Russian market rally benefits the hryvnia as the ruble's increased value has the effect of a relative devaluation of the hryvnia; this should quell domestic devaluation fears by market participants.

Источник: ICU

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