Wednesday, August 17, 2022

Rouble plunges to record low, dollar holds firm as West bolsters Russia sanctions

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TOKYO — The rouble plunged to an all-time low on Monday, and the dollar soared against nearly all peers after Western nations announced fresh sanctions to punish Russia for its invasion of Ukraine https://www.reuters.com/world/india/war-with-ukraine-putin-puts-nuclear-deterrence-forces-alert-2022-02-27, and Vladimir Putin put nuclear-armed forces on high alert.

The rouble dropped to as low as 119 per dollar in early trading, screaming through its previous low of 90 roubles per dollar.

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The declines came despite Russia’s central bank announcing a slew of steps on Sunday to support domestic markets, after Western allies ratcheted up sanctions including blocking certain banks from the SWIFT international payments system. Restrictive measures on the Bank of Russia were also imposed to prevent it from deploying its international reserves to undermine sanctions.

Adding to nerves, Putin put Russia’s “deterrence forces” – which wield nuclear weapons – on high alert.

Elsewhere, the euro tumbled as much as 1.3% to $1.112, before recovering a little to trade at $1.1165. It was also down 0.9% on the yen, and was off 0.7% versus the Swiss franc.

However, the dollar was the main beneficiary of the tension around Ukraine. The dollar index at was at 97.244, well up from Friday’s close of 96.570.

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The greenback even gained a fraction on the yen, which was at 115.58 per dollar

“In the near term we think the dollar faces a risk of pushing above the 97.47 resistance level,” said Carol Kong, an FX strategist at Commonwealth Bank of Australia.

She said the extent of the dollar’s gains would depend on any further leap in volatility, the of size the sell off in global equities, and assessment of central bank’s tightening programs.

She noted that high energy prices were capping the yen, given Japan imports the bulk of its energy requirements.

Markets are now pricing in a 95% chance the U.S. Federal Reserve will hike rates by 25 basis points at its March meeting, according to CME’s Fedwatch tool, with the invasion having put an end to speculation that the Fed will jump in with a 50 basis point hike.

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Analysts also believe the war will deter the European Central Bank from any strong tightening moves.

The Australian dollar slid 0.68% to $0.7183, the New Zealand’s dollar sank 0.72% to $0.6686, and sterling was slightly weaker at $1.336.

A top official at the Reserve Bank of New Zealand (RBNZ) told Reuters in an interview it is too early to assess what impact, if any, the Russian invasion of Ukraine might have on policy, and that it has more work to do on interest rates to control inflation.

In cryptocurrency markets, bitcoin was in the middle of its recent range trading just below $38,000.

(Reporting by Kevin Buckland; Editing by Will Dunham & Shri Navaratnam)

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