EMERGING MARKETS-Rouble touches new record low as sanctions loom; yuan falls
LONDON, March 17
LONDON, March 17 (Reuters) - The rouble touched new lows on Monday on fears of economic fallout from Russia's standoff with the West over Ukraine, while the yuan took its biggest daily fall in three years after China widened its trading band.
Some Asian currencies hit multi-month highs to the dollar, bucking the weaker yuan which fell half a percent in spot exchange rate markets after the central bank widened its trading band to 2 percent, signalling authorities may tolerate more currency weakness.
It weakened less on the central bank's daily fix.
Equities were generally higher however, with MSCI's benchmark index up 0.2 percent, rebounding off five-week lows after Chinese shares gained 0.4 percent.
EU ministers are expected to agree sanctions including travel bans and asset freezes against Russian and Crimean individuals following Sunday's referendum in Crimea which voted overwhelmingly to become part of Russia.
Russian stocks, which fell 7 percent last week to 4-1/2-year lows in anticipation of the sanctions, rose 1.8 percent on relief that the Crimean vote had passed without fresh violence and that sanctions were yet to materialise.
Sanctions could devastate Russia's already flagging economy, and the rouble eased 0.3 percent to the dollar to a new record low of 36.7. Non-deliverable forwards priced the rouble at 36.96 in a month's time and at 38.4 in six months. .
"We are in wait-and-see mode to see what sanctions there could be, if the sanctions are stringent on banks, then capital outflows could accelerate," said Manik Narain, emerging markets strategist at UBS. "But Russian markets seem to be taking the view sanctions won't be as punitive as originally feared."
He noted however that implied 12-month yields on the rouble - the difference between the spot rate and the forward/futures rate - had risen sharply to almost 10 percent after the central bank raised rates and bearish bets on the currency grew. The yield was just above 6 percent in mid-January, he said.
"For the rouble weakness to fade, you will need to see that the sanctions are really toothless," he added.
Neighbouring equity markets, from Poland to Turkey, rose 0.5-1.0 percent, tracking Western European markets .
The Turkish lira eased 0.6 percent versus the dollar ahead of a central bank meeting on Tuesday that is expected to leave interest rates unchanged.
But in Serbia, investors were encouraged by a much stronger than expected win in a weekend election for the SNS party, which has promised a drastic economic overhaul and to secure a precautionary loan from the Internatiional Monetary Fund
The Serbian dinar rose slightly to one-month highs to the euro.
"The news should above all embed confidence of foreign direct investors and highlight a pocket of relative stability in the region that will be conducive to solid performance of Serb assets," Commerzbank analysts said in a note.
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