Thursday, October 23, 2014

Russian currency woes | US out of step on mortgage lending

While we will not be trading the Russian Ruble any time soon (it is regarded as an exotic by our brokers and there are significant execution risks involved in taking and closing positions), we nevertheless think it is of interest to record the fact that it has recently been hitting a succession of all-time lows against an index comprising of a euro – US dollar basket. The chart above shows it against the US dollar only, but you get the idea (a rise in the USDRUB pair indicates a falling ruble).

While a weaker currency is often viewed by the relevant authorities as a good thing, in that it helps exports, there are limits. And also a downside for those who need to import raw materials and other goods. In light of this the Russian central bank has started to purchase rubles on the Forex market in order to prop it up. According to the Dow-Jones Newswire, it has so far spent in the region of 14.35 Billion from its US dollar reserves for this purpose during the current month of October alone. This intervention does not seem to be having the desired effect.

Russia’s international trade has, of course, been impacted by sanctions imposed by the West over the situation in Ukraine. Probably of more importance for the currency, however, is the dramatic fall in the price of oil and other hard commodities. Russia is also a big producer of Natural Gas, which is also suffering at present.

US out of step on mortgage lending

A report in the Wall Street Journal indicates that a number of regulatory agencies in the US have agreed to relax mortgage lending rules. These are the Securities and Exchange Commission (SEC), the Federal Reserve and the Dept. of Housing and Urban Development. Interestingly, this comes at a time when many such agencies around the world are moving in exactly the opposite direction. According to the report, the new standards represent an effort to ensure that more mortgage loans are made available.

In the UK and New Zealand so-called macro-prudential policies, which limit the ability of banks to grant mortgages by placing restrictions on loan-to-value ratios and other metrics, have already been implemented. Similar moves are under discussion in Australia and Ireland. In its monetary policy report issued on Wednesday, the Bank of Canada has dropped its neutral stance on interest rates while noting that the housing market was showing renewed vigour on the back of low rates. Together, these could be interpreted to mean that it is considering a possible rate rise in order to calm the housing market.

The WSJ report tells us that the US move came in spite of the objection of two SEC commissioners, who warned that “…the rules would do little to prevent a return to the kind of lax mortgage underwriting that fuelled the financial crisis”.

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