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Russian Ruble In a Freefall, Plunges to Record Low Against the Dollar

A liquidity plunge in the Ruble increases the demand for dollars. The Fed might have to step in.
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Russian Ruble vs US Dollar chart courtesy of Trading Economics

Russian Ruble vs US Dollar chart courtesy of Trading Economics

It takes more and more Russian rubles to buy a US dollar so although the chart looks up, that's a huge decline in the ruble.

And it's worse than it looks. Bloomberg has it close to 118 rubles to the dollar, not 104. 

Ruble Liquidity Vanishes   

Bloomberg reports Ruble Trader’s Day Reveals Liquidity Is Vanishing Everywhere

Spreads on the ruble have widened by eight times, with market makers from Sydney to Hong Kong pulling back, traders said. The currency was indicated 26% lower in offshore trading as the sanctions placed on Russia and its central bank ratchet up concern over the ripple effects. 

“No trades are coming through at all on the ruble,” said Nick Twidale, chief executive Asia Pacific at FP Markets in Sydney. “When anything like this happens, we cut leverage and basically tell people to close positions. It’s just too high risk.”

CME ruble futures tumbled more than 30% after the open, though some trades are now starting to trickle through, according to Matthew Simpson, senior market analyst at City Index.

“The ruble is in a freefall as the gravity of sanctions and restrictions on Russia’s central bank take effect,” he said. “CME futures fell over 30% after the open, which is not what Russians who are queuing up at cash points across the country want to hear right now.”

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Russia need to pay dollar-denominated debt but cannot because Russia is now barred from the SWIFT payment system.

The SWIFT Ban on Russia Means the Fed May Need to Ready Dollars

The decision to exclude various Russian lenders from the SWIFT messaging system could result in missed payments and giant overdrafts within the international banking system, and spur monetary authorities to reactivate daily operations to supply the market with dollars.

“Exclusions from SWIFT will lead to missed payments and giant overdrafts similar to the missed payments and giant overdrafts that we saw in March 2020,” Credit Suisse Group AG strategist Zoltan Pozsar said in a note. “Banks’ inability to make payments due to their exclusion from SWIFT is the same as Lehman’s inability to make payments due to its clearing bank’s unwillingness to send payments on its behalf. History does not repeat itself, but it rhymes.”

And the upshot from that is that the Federal Reserve, which has been paving the way to start shrinking its balance sheet through so-called quantitative tightening, might actually expand it again first, according to Pozsar.

This post originated on MishTalk.Com.

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