LONDON: The rouble tumbled more than 3 percent on Tuesday as oil prices slid and expectations grew of an imminent ratings downgrade to junk for Russia, while deflationary pressures pushed central European currencies lower.
Brent and U.S. cude futures fell to near six-year lows, down 60 percent since June, a blow for oil exporters Russia, Saudi Arabia and Malaysia.
Saudi, Qatari and Dubai shares fell more than 1 percent
, while Russia's dollar-denominated index slumped 2.7 percent. Losses on rouble shares were more muted at 0.2 percent
MSCI's emerging equity index rose 0.3 percent however, boosted by a stronger China, where data showed an uptick in trade, and Taiwan which benefited from foreign buying.
Most Asian currencies also firmed, thanks to lower crude prices and a slight dollar pullback, though oil exporting Malaysia's ringgit touched a new 5-1/2-year low. The lira and rand also rose slightly to the dollar .
"After the run-up in the dollar over the last six months, the markets were due for a bit of a correction and really, any signs of dollar weakness people are just jumping," said Per Hammarlund, emerging markets strategist at SEB, adding speculation of a U.S. rate hike delay was helping risky assets.
The rouble fell to new 3-1/2-week lows, also weighed down by fears that Standard & Poor's would soon strip Russia of its investment grade rating.
Russian dollar bond spreads jumped 13 basis points to 695 bps, the highest since mid-December.
"Another round of severe weakness in the rouble should be expected," Hammarlund said.
Ukrainian yield spreads widened 57 bps over Treasuries and the 2017 dollar bond fell 1.5 cent to 58 cents in the dollar .
A 70 percent writedown is likely on Ukrainian bonds, Goldman Sachs said, citing central bank reserves at just $7.5 billion
"The market is now pricing a high default probability with a significant haircut in 2015," Goldman wrote.
Weak oil is meanwhile fuelling deflation fears in central Europe, with Romania the latest to post below-target inflation .
In Poland deflation has deepened and prices are likely to fall in annual terms throughout the first quarter, a finance ministry official said. The zloty slipped 0.2 percent as the central bank started a two-day meeting that may deliver more dovish signals.
The Czech crown fell 0.4 percent to new six-year lows on speculation the central bank may be forced to weaken the crown further. The crown has fallen to 28.40 per euro.
On Monday, central bank board member Jiri Rusnok said the bank saw no reason at present to adjust its ceiling for the crown currency exchange rate to a weaker level from 27 per euro.
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