Rouble plunges while US dollar rises against virtually every peer

The US dollar rose against virtually every peer as fallout from the sanctions levied against Russia supercharged demand for the world's reserve currency.

Traders are hungry to secure dollar liquidity as penalties on Russia's central bank and lenders reverberate through global markets, with talk that the US Federal Reserve may have to intervene.

"USD is king, offering liquidity and safe haven attributes," said Mr Rodrigo Catril, a currency strategist at National Australia Bank. "When trouble hits the road, you need to look for cover."

The impact on the Singapore dollar has so far been minimal, with analysts keeping their 2022 forecasts for the local currency unchanged against the US dollar.

UOB's forecast is for every US dollar to be worth S$1.37 by the year end, while Maybank's forecast is S$1.30.

Analysts at the two banks noted that tight US dollar liquidity and upcoming rate hikes by the Fed will keep the currency strong versus the Singapore dollar.

Fresh Western penalties have driven the Russian rouble down nearly 30 per cent against the US dollar, while the euro fell 0.9 per cent to US$1.1165 on worries about risks for Europe's economy, which relies heavily on Russian energy.

The US dollar index, which measures the currency against six peers, gained as much as 0.83 per cent, while the broader MSCI emerging market currency index lost 0.8 per cent.

In Asia, the Singapore dollar and South Korea's won also eased 0.4 per cent and 0.2 per cent, respectively. Singapore joined many Western nations in imposing sanctions against Russia yesterday.

The Chinese yuan, which has anchored regional currencies in recent times against the risk of steep losses amid the Fed's hawkish view on interest rates and policy, gained about 0.1 per cent.

The Indian rupee reversed early gains to fall 0.3 per cent, furthering last week's 0.9 per cent loss.

Asia share markets mostly staged a rebound.

Philippine stocks surged more than 1 per cent after a steep drop last week, while Thai stocks, which sank nearly 2 per cent last week, advanced 0.3 per cent.

Singapore's Strait Times Index was down 1.6 per cent.

Meanwhile, signs of funding strains were apparent in major money markets yesterday as spreads widened for very short-term Eurodollar contracts.

The gap between future Libor and Fed rates for one-month contracts widened the most since March 2020.

March Eurodollar contracts dropped relative to June peers, a classic sign of funding stress.

That comes as Credit Suisse Group warned of how the decision to exclude some Russian banks from the Swift international payment system could impact money markets as payments are missed and giant overdrafts are made.

Strategist Zoltan Pozsar drew comparison with how the Fed had to supply dollars at the height of the pandemic panic in March 2020.

The Bank of Russia has more than US$630 billion (S$856 billion) in foreign currency reserves, with most of it held overseas, according to Bloomberg Economics, which plotted out a worst-case scenario where the bank loses access to everything other than its gold and yuan holdings.

BLOOMBERG, REUTERS