EM Rundown: The Ukraine Conflict (Again) and Central Bank Meetings

Markets are off to a bit of a slow start to the week as the Australia Day holiday and an utter lack of traditional economic data releases give traders little reason to adjust positions. In the G10 world, the data is expected to pick up throughout the rest of the week, with GDP data from the US and UK, Eurozone CPI, and central bank meetings in the US and New Zealand all on tap. The EM world has its own series of high-impact data releases this week, including central bank meetings in South Africa, Hungary, and Russia, but the more pressing development has come from (yet another) military conflict in Ukraine.

Over the weekend, the pro-Russia separatists began bombing the Ukrainian port city of Mariupol, and the leader of the rebels declared the attacks the beginning of a new Russian offensive in Eastern Ukraine. Already, the West is threatening new economic sanctions on Russia, and the Russian ruble has taken one on the chin as a result. The Russian economy remains in shambles, and if the recent geopolitical conflict escalates further, the prospect of further sanctions may keep the ruble under pressure moving forward; the ratings agency S&P just cut Russia’s credit rating to junk on similar concerns.

After consolidating below 65.00 for the last two weeks, USDRUB has rallied through that barrier to test the 61.8% Fibonacci retracement of the previous rally at 67.25. Meanwhile, the MACD is holding well above its “0” level, showing strong bullish momentum and supporting the case for further gains from here. If rates can close above 67.25 barrier, a move up to 70.00 or 72.30 (the 78.6% Fibonacci retracement) is likely next.

Source: FOREX.com

Meanwhile, EM FX traders are also looking ahead to a series of central bank meetings this week. In addition to all of its other event risk, Russia’s central bank also has a meeting on Friday, where economist opinions are split between leaving the interest rate unchanged at 17% and a cut of 100-200bps in order to stimulate the economy. With a split opinion, some volatility is likely around the meeting either way.

The central banks of Hungary and South Africa will also meet this week. Hungary’s monetary council is likely to keep its interest rate unchanged at 2.10% for the sixth consecutive month tomorrow, as is the South African Reserve Bank (at 5.75%, meeting on Thursday), though it recently revised down expectations for inflation and could mull a cut. As we’ve seen over the course of last week, readers should never take any central bank action for granted, so traders with an interest in the HUF or ZAR should be sure to keep an eye on their newswires this week.