Tags: Ukraine | protests | currency | dollar

Ukraine's Currency Hits Four-Year low as Weekend Protests Near

Friday, 13 December 2013 06:48 AM

Ukraine's hryvnia slipped to new four-year lows on Friday while depreciation bets on the currency intensified on expectation that the near-bankrupt country will hurtle into crisis without a speedy aid infusion.

Across other emerging markets, currencies came under pressure against the dollar ahead of next week's meeting of the U.S. Federal Reserve which some expect will signal the start of the stimulus wind-down.

With Kiev due to hold talks with Russia next week, anti-government protesters were preparing for a fresh weekend rally. The European Union, meanwhile, is holding out the promise of aid provided Ukraine signs a trade pact that it ditched last month.

But the political turmoil has put the economy into deep-freeze, and raised questions about how the country will defend its currency peg to the dollar and repay debts.

The EU aid hopes drove a brief 1-2 point bounce in Ukraine's Eurobonds in the past two sessions although the gains stalled on Friday .

The hryvnia traded at 8.31 per dollar in the spot market, the lowest since mid-October 2009. And non-deliverable forwards are implying a 10.25 per dollar exchange rate in a year's time, roughly a loss of 19 percent from current levels.

On Friday the one-year dollar/hryvnia forward traded 1 percent up on the day.

"In the past 24 hours, the announcement by (President Viktor) Azarov that they want an EU deal brought a bit of a rebound on the Eurobond curve. But while that's positive in the medium term, in terms of trade and investment I am not sure how much relief it will give in terms of debt repayment pressures," said Luis Costa, head of CEEMEA FX and debt strategy at Citi.

"We are talking of a country with over $7 billion in debt repayments in 2014."

A trader in Kiev said there were no dollars in the market at all, neither from exporters nor from the central bank. "If the central bank or (state-run) Oschad Bank don't come out and sell dollars, the hryvnia is going to keep falling," he added.

Ukrainian credit default swaps were untraded on Friday but Markit data show one-year CDS closed on Thursday at over 1,600 basis points, the highest since early 2010, which was shortly after the default by state-run oil firm Naftogaz.

Analysts also believe that EU aid will likely be linked in some way to a deal with the International Monetary Fund, which has made currency flexibility a pre-condition for aid. Costa said hryvnia depreciation was inevitable as Ukraine's balance of payments deficit was unsustainable at current peg levels.


Most emerging currencies pulled back against the dollar, with the Indonesian rupiah falling to the lowest in almost five years as investors priced in a possible start to tapering from next week. The Indian rupee fell over half a percent to a one-week low.

Short-term implied volatility, a gauge of expected currency swings, has surged across emerging markets, with at-the-money prompt options for the rand at two-month highs while lira volatilty has also rocketed higher this week.

Both currencies were flat against the dollar while the ruble eased to one-week lows. Russia's central bank left its key interest rate on hold Friday.

Emerging equities inched to one-month lows, having lost more than 1 percent so far this week.

Citi's Costa linked the nervousness to the Fed meeting.

"Flows will not be getting more liquid and we are seeing high-yield fixed income seeing outflows. If you can't square positions as much as you want on the bond side, you do it on the currency side," he added.

Data from fund tracker EPFR showed that dedicated emerging market funds had posted outflows of $1.6 billion in the week ended Dec. 11 while emerging equity funds lost $1.9 billion, the seventh consecutive week of outflows.

© 2018 Thomson/Reuters. All rights reserved.

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Ukraine's hryvnia slipped to new four-year lows on Friday while depreciation bets on the currency intensified on expectation that the near-bankrupt country will hurtle into crisis without a speedy aid infusion.
Friday, 13 December 2013 06:48 AM
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