Russian rouble speculators are popping up everywhere and the Kremlin is not happy about it.
Working from a laptop in Ivanovo, a city 290 kilometres north-east of Moscow where idled factories bear witness to more prosperous times as the Soviet textile capital, 39-year-old Alexey Mamontov says he made a killing in January betting on the currency’s decline.
“I would compare rouble trading to a Texas cowboy rodeo since speculators are responsible for a large part of trading,” said Mr Mamontov, who started trading rouble futures in April as a sideline to his job as a director at the Russian brokerage Finam Investment.
Since the rouble was unshackled from a managed corridor in November 2014, it has become the world’s most volatile currency after Argentina’s peso as speculators seize on the sell-off in oil, Russia’s biggest export.
Price swings underscore the trouble central banks have had controlling their currencies in the months following China’s shock devaluation of the yuan in August. A gauge of currency volatility climbed to its highest level in four years last week.
Davos trip
The central bank governor Elvira Nabiullina cancelled her trip to Davos after the rouble dropped to a record low on January 21. Havoc in the currency market creates inflation risks, distracting the Bank of Russia from its pledge to boost the economy by easing monetary policy.
The rouble’s tumble prompted the central bank to retract an easing pledge on January 29. On February 11, Ms Nabiullina said that she was concerned about the elevated volatility on the currency market.
The next day Alexander Bastrykin, head of Russia’s investigative committee, said insider trading by speculators was to blame for the rouble’s depreciation.
In an interview with the online newspaper Gazeta.ru on February 8, Sergei Glazyev, an economic adviser to the Russian president Vladimir Putin, said speculators had raked in US$50 billion by manipulating the exchange rate since 2014.
Mr Putin himself threatened “harsh” consequences for those attacking the rouble during the previous currency crisis in December 2014.
While recriminations are heaped on speculators, they can hardly be blamed for the conditions they thrive on – an ailing economy and an exchange rate set by the market.
Russian GDP shrank 3.7 per cent last year, the first decline since 2009, and is poised to contract again this year.
“These days people are trying to make extra cash on anything, and foreign currency trading is the simplest way to make money,” said Oleg Popov, a money manager at Moscow-based April Capital. “The central bank’s decision to set the rouble free in 2014 invited speculators to the market.”
Anyone, everywhere
People from all walks of life are becoming rouble traders as the second year of recession squeezes incomes. Almost anyone can enter the foreign currency market with a relatively small amount of money, Mr Popov said.
In Ivanovo, a city of about 400,000 people, where the average monthly income is 20,592 roubles (Dh975) – 37 per cent below the national average and one of the lowest nationwide – Mr Mamontov uses technical analysis such as the Elliott wave principle to make his bets.
He has made more than 700 per cent since April on rouble-dollar futures, according to his account detailed on the Finam website. Bloomberg was not able to independently verify his returns.
Large speculators
“Once large speculators arrive on the market, it turns wild, volumes rise and so does volatility,” Mr Mamontov said. “In such a situation a trader could lose his entire fortune after three or four unlucky bids. Not every trader’s nerves can handle such volatility.”
Foreign currency market trading on the Moscow Exchange surged 95 per cent from a year earlier in January, with the average daily turnover reaching 1.5 trillion roubles, the exchange said on February 2.
The turnover in 2015 was the most on record. Investors anticipate even bigger price swings in the rouble, with a gauge of three-month implied volatility at 27 per cent, the highest of any emerging-market peer after Argentina’s peso.
The rouble firmed 0.2 per cent to 77.76 against the dollar on Wednesday, with exporters selling foreign currency outweighing worries about falling oil prices.
On Tuesday oil producers including Russia and Saudi Arabia agreed in Doha to freeze oil production at January levels, provided other oil exporters such as Iran do likewise.
Analysts at ING said Russia’s oil output would decline naturally and that Moscow’s declarations of a production freeze were nothing but a “verbal intervention”. “As a result, the ‘oil roller coaster’ on the rouble is likely to continue,” they said.
Forex Club analysts said that should Iran come aboard on the Doha deal and agree to freeze output, Brent could climb back to $34 per barrel, which could lead to the rouble firming to about 76.30 per dollar.
Mr Mamontov said he started trading dollar-rouble futures using $1,000 of his savings. In a city where people have long sought informal economic activities and patchwork jobs to survive, Mr Mamontov has been busy opening accounts for people trying to make money on the side.
A Ukrainian native, Mr Mamontov moved to Ivanovo, known as the city of brides for its female working population, to pursue studies in 1993 and decided to stay on.
Mr Popov at April Capital, said: “People have almost no alternative to making extra money in the current economic situation. When the economic situation stabilises, people will return to doing business and to making money via more traditional means.”
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