Top-Performing Currency May Wipe Out All Gains Before Year End

(Bloomberg) -- Russia’s ruble will erase nearly all of this year’s gains in the next three months as a strengthening dollar batters emerging-market currencies, according to the most accurate forecaster.

Jaroslaw Kosaty, a strategist at Poland’s largest bank who accurately forecast ruble moves in the past two quarters, says the currency will drop about 6% to 69 per dollar by the end of the year. That would come close to wiping out the gain that has led the ruble to top global currency returns in 2019.

The forecast is based on an assumption that the U.S. Federal Reserve will be less aggressive than expected with interest-rate cuts, decreasing demand for higher-yielding assets. Traders trimmed their outlook for easing this year after data published Friday showed a drop in the unemployment rate.

“I still expect the Fed to keep disappointing the markets with its monetary policy,” said Kosaty, a currency strategist at PKO Bank Polski in Warsaw. This “should act in favor of the dollar until the end of 2019.”

In addition, if a recent crunch in the U.S. repo market persists, “it may lead to increasing dollar funding problems in the main emerging markets,” Kosaty said.

The ruble was trading around 65 to the dollar as of 11:45am in Moscow on Tuesday.

Other analysts are less pessimistic. Commerzbank AG strategist Tatha Ghose, the second-best forecaster for the third quarter, sees “no major movement” in the exchange rate before the end of the year. A possible retreat in oil prices as Saudi Arabia overcomes a recent outage could put pressure on the currency in the next few weeks, he said.

Yuri Popov, an analyst at Sberbank CIB in Moscow, said the ruble could weaken as much as 6% only if trade tensions between the U.S. and China tip the global economy toward recession. His base case forecast for the currency is 67 per dollar by year end.

To contact the reporters on this story: Kira Zavyalova in Moscow at kzavyalova@bloomberg.net;Áine Quinn in Moscow at aquinn38@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Natasha Doff, Paul Wallace

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