A bank employee holds five hundred Russian Ruble notes. Photographer: Jason Alden/Bloomberg

The Ruble's Calm Is Like a Swan

(Bloomberg Gadfly) -- The ruble has rallied. Let's not get used to that.

Sure, there was a lot of sense behind the rout, what with the U.S. sanctions having been cleverly designed to seriously undermine the Russian economy.

The Ruble's Calm Is Like a Swan

Gold, a traditional safe haven, played its part and has tracked the ruble this week.

The Ruble's Calm Is Like a Swan

U.S. Treasury Secretary Steven Mnuchin was a big help in driving a return to calm. This week he removed one wild card from the pack, by ruling out the prospect of America extending its sanctions to encompass Russian local currency sovereign debt. This prompted a recovery in the ruble bond market, which in turn removed some of the liquidation pressure on the currency. A third of ruble-denominated bonds are owned by foreigners and a lot of these are American. And who can blame them? It's been a great trade.

The Ruble's Calm Is Like a Swan

But Russia is not going to be let off the political hook on sanctions or for its involvement in Syria, and other markets seem to be reflecting this.

The Swiss franc, another paradigm of safety, has, surprisingly, weakened. Or maybe not so surprising -- Bloomberg News reports that this may be the impact of Russian oligarchs liquidating their assets. If foreigners are getting out of Russian holdings, citizens are bringing their money back home. 

The Ruble's Calm Is Like a Swan

And maybe this explains why Bitcoin -- another potential means to transfer assets -- has soared. Maybe.

The Ruble's Calm Is Like a Swan

The Central Bank of Russia has helped the ruble by making a conscious effort to stop making its situation worse. It suspended building up its foreign-currency reserves, which had involved selling rubles to buy about $180-200 million daily. But officials say they'll resume buying once the current bout of volatility subsides. And, by insisting they'll stick to their free-float policy, they're ruling out intervention.

The lack of a western military response in Syria, despite President Donald Trump's tweets, to a reported chemical weapons atrocity has also contributed to the ruble's part-recovery. Betting that all these powers will restrain their might is foolish.

There are lots of reasons to think the ruble can turn right back down again, and precious few to believe the rally will continue. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

To contact the author of this story: Marcus Ashworth in London at mashworth4@bloomberg.net.

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