Tumbling rouble hits 61 vs dollar, Rusal shares leap on merger talk

The rouble tumbled to a near four-week low on Tuesday, at one point losing more than 10% to hit 61 against the dollar, while shares in aluminium producer Rusal leapt as Russian businessman Vladimir Potanin hinted at a possible merger with Nornickel.

Investors were looking for clues on when Russia may intervene in the currency market, something Finance Minister Anton Siluanov said Russia could turn to as it tries to keep a lid on the rouble’s strengthening.

The central bank did not respond to a request for comment on what caused the rouble’s sharp drop on Tuesday.

The finance ministry said it did not plan to use extra budget revenues to buy foreign currency or gold, as it eyed increased budget revenues this month thanks to higher oil prices.

By 1124 GMT, the rouble was 10.3% weaker against the dollar at 60.96, its weakest point since June 8. The unit had lost 8.3% to trade at 62.53 versus the euro, having slipped throughout the day’s trading in Moscow.

The rouble’s recent slump from more than seven-year highs hit last Wednesday is just a correction on the market, said Alor Broker in a note.

“It is too early to talk about a break in the rouble’s strengthening trend,” Alor Broker analysts wrote. “Russia’s balance of payments will continue to remain very strong, importers will not recover their positions quickly.

“Only by introducing a new budget rule can the situation on Moscow Exchange’s currency market change radically.”

The rouble is still the world’s best-performing currency https://emea1.apps.cp.thomsonreuters.com/Apps/NewsServices/mediaProxy?apiKey=6d416f26-7b24-4f31-beb6-1b5aa0f3fafb&url=http%3A%2F%2Ffingfx.thomsonreuters.com%2Fgfx%2Frngs%2FGLOBAL-CURRENCIES-PERFORMANCE%2F0100301V041%2Findex.html this year, boosted by measures – including restrictions on Russian households withdrawing foreign currency savings – taken to shield Russia’s financial system from Western sanctions imposed after Moscow sent troops into Ukraine on Feb. 24.

Proceeds from commodity exports and a sharp drop in imports are further factors behind its gains. But the rouble has now lost the support of last week’s tax-driven dollar and euro sales.

Expectations of the imminent launch of currency interventions may continue to pull support from the rouble on Tuesday, said Promsvyazbank analysts.

The rouble’s strength has raised concerns among officials and export-focused companies because it dents Russia’s income from selling commodities and other goods abroad for dollars and euros.

Analysts have said there is little difference between 50 and 60 roubles to the dollar in terms of how critical it is for the budget.

METALS MERGER

Potanin, the largest shareholder at Nornickel, said he was ready to discuss a possible merger of the mining giant with Rusal, in part as a defence against Western sanctions.

Rusal’s Moscow-listed shares leapt more than 20% before settling around 7% higher. Shares in En+, Rusal’s majority shareholder, were 7.1% higher in Moscow. Nornickel shares fell 4.6%.

Russian stock indexes were mixed, with prices driven by the large currency swings.

The dollar-denominated RTS index was down 7.5% to 1,156.1 points, its lowest since late May. The rouble-based MOEX Russian index was 0.7% higher at 2,221.5 points.

Moscow Exchange said it would resume evening trading on the derivatives market from July 12 due to high demand from clients, having introduced a raft of restrictions soon after Russia began what it calls a “special military operation” in Ukraine.