Forex Market: USD/RUB registers a fresh record high in light trade, Russia says sovereign bond payments will depend on sanctions

The Russian Rouble plummeted to a fresh all-time low against the US Dollar in light offshore trade as trading on the Moscow exchange is due to be closed until March 9th for a bank holiday.

The war in Ukraine and the severe sanctions imposed on Russia by the West have triggered a sharp sell-off in Russian assets and a steep rise in prices of Russian exports, including precious metals, oil and gas, at a time when economies across the globe were already struggling with inflationary pressures.

“This is very bad news for global growth – particularly Europe, given their dependence on gas from Russia,” ANZ analysts wrote in an investor note, cited by Reuters.

“All up, it’s another big, ugly supply shock on top of lingering COVID impacts, with serious inflationary consequences that give central banks absolutely no room to ‘give growth a chance’.”

The armed confrontation intensified over the past weekend, while attempts to achieve a ceasefire to allow about 200,000 people to evacuate from the besieged city of Mariupol have so far been unsuccessful. According to Ukrainian authorities, most of the people trapped in that city are sleeping underground in an attempt to escape over six days of near-constant shelling by the Russian military forces.

The suspension of Russia’s “special operation” in Ukraine “is only possible if Kyiv stops military operations and carries out well-known Russian demands,” the Kremlin said.

In other news, Russia announced on Sunday that sovereign bond payments would depend on Western sanctions, which raised concerns over the country’s first major default on foreign bonds since the era after the Bolshevik revolution in 1917.

Russia’s finance ministry said that sovereign debts would be serviced and paid in full and on time. Still, payments may be impeded by the global sanctions.

“The actual possibility of making such payments to non-residents will depend on the limiting measures introduced by foreign states in relation to the Russian Federation,” the finance ministry said.

This increases the chances of a technical default on debt by the country after a large part of its $640 billion reserves were frozen by the West.

Meanwhile, the US Dollar advanced to a fresh 22-month peak of 99.220 against a basket of six major peers after Friday’s macro data showed US unemployment rate had dropped to a two-year trough of 3.8% and ahead of the CPI inflation report due later this week. Annual CPI is expected to rise 7.9%.

The White House said on Sunday that it was considering a ban on imports of Russian oil, regardless of concerns such a decision could push prices even higher.

Oil prices have reached highs not seen since 2008 and surged 10% in Asian session on Monday.

The Russian currency depreciated to 130.9338 against the US Dollar, according to Refinitiv data, after the currency pair closed at 121.037 on Friday. The USD/RUB pair has gained over 40% since the start of the year.

“It has become very difficult to trade the rouble after the sanctions,” Aaron Hurd, senior portfolio manager, currency at State Street Global Advisors, said.

“Liquidity has vanished and markets have become very volatile.”