Russian rouble drops most in 2 years as US warns of Ukraine invasion

[MOSCOW] The rouble fell the most in nearly 2 years on Friday (Feb 11) after the United States said Russia has amassed enough troops near Ukraine to launch a major invasion, urging all US citizens to leave the country within 48 hours.

A rate increase from the Russian central bank and high oil prices were no match to the concern over the perceived escalation towards war.

"It's definitely a safe-haven move," said of the spike in the dollar Bipan Rai, head of FX strategy at CIBC Capital Markets in Toronto.

"We're also seeing other (safe) haven assets rally as well, including US Treasuries as well as the Japanese (yen). This feels very much like the market is growing more and more concerned with the prospect of an invasion."

White House national security adviser Jake Sullivan said mid-afternoon in Washington that a Russian attack on Ukraine could begin any day and would likely start with an air assault.

The rouble was down 2.8 per cent at 77.1675, set for its largest daily percentage drop against the greenback since mid-March 2020.

It had been rebounding from the nearly 15-month low of 80.4125 it hit during a sell-off last month, and traded at 74.2550 on Thursday, which was its strongest level since Jan 3.

Versus the euro, the rouble eased 1.8 per cent to 87.5375 on Friday.

Moscow has denied plans to invade its neighbour.

Geopolitical tensions proved to be more important for the market than the Bank of Russia's decision to raise its key interest rate by a hefty 100 basis points to 9.5 per cent, a move that had been largely priced in.

Russian equities have also come under renewed pressure, remaining sensitive to tensions over Ukraine.

Russia's dollar-denominated RTS share index fell 5 per cent to 1,470.1 points, while the rouble-based MOEX index was 3 per cent lower at 3,546.62 points. Shares in oil major Rosneft were down 3.9 per cent after reporting record net income for 2021 that missed forecasts.

Russian stocks traded in the United States tumbled, with HeadHunter Group down 14.3 per cent, Mobile TeleSystems down 5.8 per cent and Mechel PAO down 4.2 per cent.

"Buyers are no longer so sure of themselves: the geopolitical element is factored into prices and no new reasons to buy have appeared," Alfa Capital said.

Russian bonds also fell, with the 2047 down 3 cents and the 2043 down 2.15 cents, both yielding close to 4.5 per cent.

Ukrainian bonds tumbled, with declines between 1.9 and 3.4 cents across all durations. REUTERS