Rouble Surges to One-Year Highs Amid Sanctions

The Russian rouble reached one-year highs against the dollar and yuan in low liquidity, driven by recent U.S. sanctions on key financial systems. The restrictions led to trading moving to the over-the-counter market, causing a range of prices and spreads, ultimately strengthening the rouble amid limited liquidity and market imbalances.

The Russian rouble climbed to one-year highs against the dollar and yuan in low liquidity on Wednesday, as the market continued to adjust to last week's U.S. sanctions on key financial systems that led to a halt in dollar and euro trading. The sanctions on Moscow Exchange and its clearing agent, the National Clearing Centre (NCC), led to a range of varying prices and spreads as trading moved to the over-the counter (OTC) market on June 14, obscuring access to reliable pricing for the Russian currency.

On the interbank market, where liquidity can be low and major Russian banks that have been sanctioned cannot participate, the rouble traded 3.3% higher by 0823 GMT against the dollar at 82.50, its strongest since June 2023. The average dollar-rouble mixed composite rate, calculated by LSEG and based on data from international brokers and counterparties, was at 83.28.

An indication of the wide spreads, the difference between buying and selling prices, was the central bank's official dollar-rouble rate set at 87.03 for Wednesday, calculated based on OTC trading. The rouble has strengthened sharply since the sanctions were imposed amid low liquidity, largely caused by various technical difficulties to do with interbank limits when closing FX deals on the OTC market.

Market imbalance is skewed in favour of FX sellers due to restrictions imposed by banks and brokers following the sanctions, creating problems in withdrawing and using funds, helping to strengthen the rouble. Against the yuan, the rouble rose 1.7% to 11.26, earlier reaching its strongest since May 2023, according to an analysis of the OTC market.

The yuan had surpassed the dollar to become the most traded currency with the rouble in Moscow before last week's sanctions were imposed. It accounted for a 54% share of the FX market in May. Yuan-denominated export proceeds support the rouble against the Chinese currency. The Bank of Russia's foreign currency sales in yuan, currently at the equivalent of 8.1 billion roubles daily, also favour the rouble.

"The new sanctions package is likely to increase pressure on imports, which are the basis for foreign currency demand," said Promsvyazbank analysts, forecasting the rouble to strengthen further against the yuan, which may lead the central bank to reduce yuan sales going forward. Brent crude oil, a global benchmark for Russia's main export, was down 0.5% at $84.94 a barrel, near early-May highs.

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