MOSCOW: The Russian rouble pared early gains and was nearly flat in afternoon trade on Friday, supported by climbing oil prices and continued central bank foreign currency sales as OFZ treasury bond prices surged to record highs.
Expectations that Russia's central bank would cut its key interest rate imminently have pushed the yield on the benchmark 10-year OFZ to 5.59%, an all-time low. Bond yields move inversely to prices.
The central bank lowered the rate by half a percentage point to 5.5% in late April and said it would consider a 100-basis-point cut in June to limit the economic impact of the coronavirus pandemic.
"Record OFZ placements may also attract non-resident inflows to support the rouble," Bank of America Merrill Lynch said in a note. "We expect the yields to move lower given the aggressive easing cycle."
Governor Elvira Nabiullina's next public appearance is an online news conference on May 22.
By 1417 GMT, the rouble was 0.1% stronger against the dollar at 73.42 and had lost 0.2% to trade at 79.53 versus the euro.
Brent crude oil, a global benchmark for Russia's main export, was up 2.9% at $32.02 a barrel, having earlier reached its highest mark since April 13.
Russia's currency saw external support as China's factory output rose for the first time this year, a ray of light on the gloomy economic horizon, with global markets battered by ongoing restrictions due to the coronavirus pandemic.
The rouble could test local highs against the dollar against the backdrop of tangible oil price growth, analysts at Sberbank CIB, the investment arm of Russia's largest lender Sberbank, said in a note.
The rouble retained support from central bank daily foreign currency sales, even after they declined to the equivalent of 11.4 billion roubles ($155.7 million) on Wednesday from more than 20 billion roubles last week.
The currency was additionally buttressed by the start of a month-end tax payments period that usually leads export-focused companies to convert foreign currency revenues to meet local liabilities.
Russian stock indexes were up.
The dollar-denominated RTS index was up 1.7% to 1,121.2 points. The rouble-based MOEX Russian index was 0.9% higher at 2,613.5 points.
Shares in Russia's largest oil producer Rosneft were up 1.7% on the day at 353 roubles per piece after it reported a first-quarter loss of $2.1 billion due to the spread of the coronavirus and a weaker rouble.
The Moscow Exchange, which nearly doubled its first-quarter profit thanks to higher market volatility, saw its share underperforming the broader market as they dipped 2.3% on the day to 113.75 roubles per piece.