By Sujata Rao
LONDON Feb 28 Russia's rouble stayed near
five-year lows to the dollar on Friday, hit by fears about
instability in neighbouring Crimea, but Ukraine's hryvnia
rebounded, trading 5-10 percent firmer on hopes of an IMF loan.
The rouble and other emerging currencies were also pressured
by jitters over the recent volatility in the Chinese yuan which
posted its biggest daily fall since China created its foreign
exchange market in 1994.
In Ukraine, armed men have taken control of two airports in
the Crimea region in what the government described as an
invasion by Russian forces, raising fears of an escalation of
tensions between the neighbours and between Moscow and the West.
Russia has denied involvement.
The impact of the crisis in Ukraine, continued to be felt
across all emerging markets but is taking a heavy toll on
Russian assets in particular as it comes on the heels of
evidence that the country's economy is slowing.
The rouble fell 0.3 percent to the dollar and hit a
fresh record low to the euro and a euro-dollar basket
used by the central bank. It has lost more than 2
percent this month against the dollar, taking its losses since
the start of 2014 to 9 percent. It has fallen 3.5 percent in
February to the basket.
"Ukraine is a trigger, not a cause," said Per Hammerlund,
chief EM strategist at SEB in Stockholm. "We have generally a
bearish view on the rouble, primarily because of fundamentals
but recent turmoil in Ukraine is contributing to a push lower."
He noted that Russia's current account surplus was shrinking
while the central bank is losing reserves as it intervenes in
currency markets at the pace of $400 million a day.
Russian stocks touched a new three-week low and have
lost 3.5 percent so far this week.
In Ukraine however, despite the Crimean tensions, there were
signs of stabilisation on financial markets after the country
formed an interim government and said it would abide by the
conditions of any IMF loan agreement.
An IMF mission is due in Kiev next week, raising hopes of a
loan that will stave off bankruptcy and default. Meanwhile the
central bank slapped curbs on deposit withdrawals from banks.
The hryvnia which fell to record low beyond 11 per dollar on
Thursday, briefly traded at 9.80 per dollar, a rise of
10 percent on the day, while the country's dollar bonds were
around half a point stronger across most maturities.
Forward markets are now pricing less hryvnia depreciation
ahead, with 6-month forwards now trading at 11.5 per dollar
compared to levels beyond 12 on Thursday.
In Turkey, the lira firmed marginally against the
dollar while Istanbul shares rose 1 percent after
better-than-expected trade data. But investors remain cautious
due to uncertainty following corruption allegations from leaked
recordings purportedly of Prime Minister Tayyip Erdogan.
Broader emerging equities were up 0.3 percent to a
one-month high, buoyed by gains on Chinese stocks and comments
by U.S. Federal Reserve chairman Janet Yellen.
Hammerlund said yuan moves would dampen sentiment.
"This is a policy decision to widen the band eventually and
shake out some speculative positions to indicate the yuan can go
both ways. It will have a dampening effect on risk taking in
emerging markets," he added.
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )