Russia Widens Ruble Band and Abandons Intervention Within the Range

The Central Bank of Russia widened the range of trading allowed for the ruble against a basket of dollars and euros and said it intends to make the currency a free-float by the end of this year.

The CBR will no longer intervene in the FX market if ruble is within the permissible band.

"The permissible range of the dual-currency basket rouble values (floating operational band) was symmetrically widened from 7 to 9 roubles, according to the central bank press release published on its website on Monday.

The CBR also limited a practice of FX intervening at specific levels; it will now won't intervene at all when the currency is within the permissible band.

And moreover, the cumulative volume interventions, which lead to the shift of the floating operational band's borders by 5 kopecks, was decreased from $1,000mn to $350mn.

The CBR said the changes are as part of its intention to complete the transition to inflation targeting regime in the country.

"One of prerequisites for its successful implementation is abandoning any measures to manage the exchange rate. The Bank of Russia plans to complete the transition to a floating exchange rate regime until the end of 2014," the bank said.

Ruble is unlikely to be impacted by the move as it is now within the band, the CBR said.

"Taking into account that the current value of the dual currency basket is in the neutral range of the floating operational band, this decision will not have significant impact on current rouble fluctuations," the statement showed.

The Ruble Move

And there was no significant reaction in the forex market following the move on Monday; the ruble only slightly strengthened to 35.92 against the dollar from Friday's close of 36.13.

The USD/RUB pair has been supported above 35.90 in the last week after it dropped off the five-month high of 36.54 touched on 8 August.

Ruble has been keeping a broad downtrend against the greenback since May 2011 and was down more than 25% since then at USD/RUB's March 2014 peak of 36.89.

The currency managed to rebound 8.5% by the end of June but fell sharply again in July, reversing most of the four months' gains, as heightened Russia-Ukraine tensions led to tough international trade sanctions against Russia.

In July alone, ruble weakened 4.9% and continued lower in August. On Monday, it was down 6.4% down from the June high.

USD/RUB Technicals

The pair has its immediate support at 35.62, the 61.8% Fibonacci retracement of the March-June selloff and then 35.38, ahead of the 50% level of 35.23.

A break of that will weaken the uptrend since June and will open doors to the more important support region of 34.93-34.75, which falls near the 38.2% retracement and 50-day moving average.

A break below that will confirm resumption of the downtrend since March and will expose 34.35 and 33.55, the June low.

On the higher side, a closing break above 36.36 will strengthen the case for a rally above the 8 August peak of 36.55 and open doors to 36.89, the March peak.