RUBCAD tends to be a FX pair that’s highly correlated with moves in Brent (top-left chart). The main appeal of RUBCAD as a relative-value trade against crude is that there is much less direct US dollar exposure from the trade. Both Russia and Canada are dependent on commodity markets and oil, but Russia has a much greater direct exposure to crude oil prices. Crude accounts for 11% of Canadian exports (refined petroleum makes up another 2%) compared with 28% for Russia (refined Petroleum makes up another 16%).

Given the Russian economy’s heavy dependence on oil exports, the ruble usually trades closely with crude oil. However, there is a notable divergence between RUBCAD and Brent oil at present. The top-right chart shows that the rise in Brent has helped Russian FX reserves to grow again, while Russian oil exports are also picking up (bottom-left chart). RUBCAD is also a very positive carry trade as Russian real rates are high relative to Canada’s (bottom-right chart). Although we have concerns that crude oil prices themselves look to have peaked, as a short-term catch-up trade, buying RUBCAD is attractive. We like tactical longs outright on RUBCAD, or as a relative-value trade against being short Brent.

(Click on image to enlarge.)

Source: Bloomberg, Macrobond and Variant Perception