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The rouble turned volatile as investors made sense of a tweak by the Trump administration to part of the US sanctions on Russia.

The currency moved 1.7 per cent higher, trading at an 18-month high of RUB58.547, before quickly giving up most of that rise and falling back below the RUB59 level as investors parsed the decision.

The changes in the sanctions appeared to re-authorised certain technology exports to Russia’s Federal Security Service. White House press secretary Sean Spicer said that the order from the Treasury department was “not easing sanctions”, throwing some cold water on the earlier bullishness.

Expectation of sanctions easing has contributed to a strong rouble rally this year. It is 4.5 per cent higher, also helped by a stronger oil price and a more stable economy, and its high interest rates which make it an attractive carry trade opportunity. Its central bank meets on Friday when it is likely to keep rates on hold.

But the rally dates back 12 months, since when the rouble has appreciated by around a third. If anything, the rouble’s strength is starting to make policymakers fret.

“High oil prices should continue to boost the economy, but it appears policymakers are growing concerned about the firm ruble,” said Win Thin of Brown Brothers Harriman.

“The central bank last cut rates 50 bp to 10 per cent in September but has been on hold since then. Governor Nabiullina may be tempted to cut rates when the bank meets this Friday, but we think it’s too soon. She and other senior bank officials have consistently sent a hawkish message and pledged to keep rates steady until most likely Q2.”

Russia was frozen out of international credit markets for two years as a result of western sanctions. Last May, the country’s return to markets was hampered by the lack of participation from international banks as underwriters and major global fund houses investing – in spite of Russia explicitly saying that none of the proceeds would go to entities subject to US or EU restrictions.

For investors, however, Russian bonds were one of the best performers of 2016 as the stronger rouble and prospect of rate cuts ramped up demand. Yields on Russia’s five year rouble-denominated bonds fell to a three year low in January.

Copyright The Financial Times Limited 2017. All rights reserved.
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