Analysts at Nomura suggested a trade idea to buy a 3m USD/RUB 60/57 call spread for an indicative 1.86% of notional (spot ref: 56.79). We allocate $5mn equivalent to this trade.
Key Quotes:
"Russia’s recent revised budget for 2017 came with a very small upward revision to the oil output number and a higher oil price assumption for the year, with the oil price in RUB terms revised up by more than 8% to RUBOIL2,928 from RUBOIL2,700 previously."
"The small upward revision in oil output, coupled with the upward revision in RUBOIL, means the budget is reliant on higher RUB oil revenues. This, in turn, means Russia needs the OPEC production cuts to be adhered to; if not, RUB needs to weaken to protect the fiscal position."
"This suggests that RUB’s correlation with crude will become increasingly asymmetrical, rising when crude is trading around $50 or below, while moderating at higher levels. "
"At current levels RUBOIL is hovering just below the 2,928 budget minimum, suggesting that unless the oil price rises, RUB needs to weaken, with the fiscal ‘equilibrium’ USD/RUB rate currently around 58.00-58.25. Also, over the past six months RUBOIL has averaged around 12% above the 2,700 minimum for the old budget. Simply as a comparison, assuming a similar ‘cushion’ under the new budget would imply a RUBOIL rate around 3,270 and an ‘equilibrium’ USD/RUB exchange rate around 64-65."
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