Rouble Hits One-Month Low Amid US Sanctions

The Russian rouble fell to a one-month low against the dollar due to new U.S. sanctions, causing the Moscow Exchange to halt trading in dollars and euros. Low liquidity and high volatility ensued. The central bank downplayed the impact, emphasizing the growing role of the yuan.

The rouble fell to a one-month low against the dollar on the interbank market on Thursday, amid very low liquidity in premarket trading, after new U.S. sanctions on Russia forced the Moscow Exchange to halt dollar and euro trading.

The unusual situation means access to reliable dollar-rouble bid and ask prices is difficult to come by, as trading moves exclusively to the over-the-counter (OTC) market. The central bank will publish the official daily rate, based on OTC trading, closer to 1400 GMT. The rouble's previous close, on the eve of Wednesday's national holiday, was 89.10 to the dollar. On the interbank market, it reached as low as 91.7455 as some banks took speculative positions.

The new U.S. sanctions against Russia on Wednesday forced an immediate suspension of trading in dollars and euros on its leading financial marketplace, the Moscow Exchange. The exchange and the central bank rushed out statements on Wednesday within an hour of Washington announcing the new sanctions aimed at cutting the flow of money and goods used to sustain Russia's war in Ukraine.

The central bank also suspended trading in the Hong Kong dollar, which is pegged to the U.S. dollar, but was keen to downplay the possible impact of sanctions. "Over the past two years, the role of the US dollar and the euro in the Russian market has been consistently declining," the central bank said on Thursday. The yuan has surpassed the dollar to become the most traded currency with the rouble in Moscow, accounting for a 54% share of the FX market in May.

The rouble had firmed 0.2% to 12.20 against the yuan as of 0710 GMT, having opened at a three-week low in a volatile start to the session. Russia's rouble-based MOEX Russian index plunged to a near six-month low in early trade, before paring some losses to trade 1.9% lower at 3,112.1 points.

VOLATILITY, WIDE SPREADS Banks, companies and investors will no longer be able to trade either the U.S. dollar or the euro via the central exchange, which allows benefits such as liquidity, clearing and oversight.

Instead, they will trade OTC, where deals are conducted directly between two parties. The central bank said dollar and euro turnover on the OTC market had long exceeded their transaction volumes on MOEX.

"The new sanctions should not affect the rouble rate in the medium term," said Yuri Popov, SberCIB Investment Research strategist. "In the short term, there may be high volatility and wide spreads at exchange counters." Major brokers have also blocked accounts in dollars, euros and Hong Kong dollars, with deposits and withdrawals unavailable.