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Ruble At A Two-Month High (NYSE:XRU)

December 28th, 2010

The Russian currency is surging as oil prices recover and traders lock in the likelihood of higher interest rates ahead. There are ways to play this story.

This morning alone, the ruble is up another 70 basis points as the flow of oil out of Russia at higher prices per barrel pushes more and more foreign money into the country in response.

At this rate, it looks like crude might crack $100 a barrel in the foreseeable future, which would only drive additional strength for the ruble against the euro, dollar and other currencies.

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Meanwhile, Russian central bankers have started raising overnight interest rates to fight increasing inflation pressures. As a commodity-oriented economy, Russia naturally generates inflation as its oil wells and gas pipelines pump new wealth out of the ground and convert it into foreign currency.

With local rates at only 2.75%, there is a long way to go before a full-fledged tightening cycle ends — which is evidence of just how artificially cheap Bank Rossii has been keeping the ruble over the last year.

As it is, the ruble remains more or less officially pegged to a basket of dollars and euros created to keep the Russian unit stable against its global rivals.

Russian banks are reportedly shifting their reserves to favor rubles, so it looks like traders’ suspicions that this currency will be a huge outperformer in the new year may be rewarded. If so, the CurrencyShares Russian Ruble ETF (NYSE:XRU) is theoretically a decent way for U.S. retail investors to get exposure to this story:

Moscow markets will close on Friday and not open again until after the Russian new year holidays end January 10.

Written By Tim Seymour From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.


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