Morning Brief – Intervention in the air

Charles Porter
Tue 15 Aug 2023

Intervention in the air

Over the past 24 hours there has been a lot of talk of intervention and currency management within the market. Besides the Yen whose yield curve control debate has been dominating headlines for some time now, Argentina and Russia are in focus for the potential to take an active management role in their currencies. These currencies may not be the most heavily traded in the market by any means, however, their valuations will still have an impact on the wider FX space. Most notably, the Ruble’s value will continue to create spillovers into the rest of the market given that RUB daily traded volumes remain significant.  

Starting with Russia then. Russia’s central bank called an extraordinary general meeting to discuss its currency scheduled for today. The Ruble has been declining to reach lows not seen versus the US Dollar since shortly after Russia began its invasion into Ukraine. With the Ruble having stabilised quickly last year following the flash crash in the immediate aftermath of the invasion, the Ruble shows little sign or normalising itself this time around. The US Dollar-Ruble exchange rate has traded in excess of 100 in the past few sessions reflecting a 50% decline in the value of the Ruble in a little over a year. Should the central bank choose to intervene the adjustment could change flows in neighbouring and exposed openly traded currencies and also change the composition of international reserves within Russia. That would imply supply and demand imbalances across markets outside of the Ruble alone.

In Argentina, the Peso has been allowed to devalue to a new level versus the Dollar. Allowing the official pegged exchange rate to rise to 350 from a traded level of 287 only last week will take pressure off the currency pair. With the primary election having taken place this weekend, the move that will be expected to bring considerable pain to consumers and businesses could change the composition of domestic politics significantly. Interest rates in Argentina were raised to help stabilise the new peg to a modest 118%. 

Discussion and Analysis by Charles Porter

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