Russia FX Beat - August 4, 2017

> Today's focus. Jobs data as the dollar nears key levels.
> Global trigger: Jobs day. Given today's being the first Friday of the month, attention will turn to the monthly US jobs report (15:30 Moscow time).
The Bloomberg consensus expects a payroll rise of 180,000, which would be a good outcome. But policymakers and investors will focus more on the part of the report about average hourly earnings. A decline in the y-o-y rate from 2.5% to 2.4%, as the consensus expects, would be disappointing and lead market pricing for a US rate hike by year end to slip further.
It would also likely heap more pressure on an already weak dollar. We note that several major FX crosses are at, close to or have already crossed key levels: EUR/GBP punched up through the important 0.90 level yesterday, while USD/JPY is sitting on support at 110. It is also looks increasingly likely that EUR/USD will gain to test 1.20 and the DXY will test 92 before long.
> Bottom line. Only a woeful jobs report could take EUR/USD to 1.20 today.
> Regional trigger: USD/RUB balanced. USD/RUB traded in a wide range of one ruble yesterday. Early in the day, USD/RUB rose to as high as 60.85, matching its high from Wednesday, but missed hitting a new multi-month high. Decent ruble demand from local corporates and foreign investors, plus a rally in oil prices, then helped USD/RUB move lower toward 60.
USD/RUB at 60 feels well-balanced at present. The latest deterioration in US-Russia relations increases the tail-risk probability of a fast move in USD/RUB sharply higher toward 63 (President Trump's comment yesterday that relations with Russia are at "an all-time and very dangerous low" highlight this.) On the other hand, global volatility is low and demand for high-yielding currencies is decent, among which the ruble ranks highly.
Our view is that the ruble will continue to weaken over 3Q. As the dividend payment season has come to an end, we think next week will see net sales of rubles as dividends are converted into FX. In addition, we doubt that tax payments due later this month will provide much support for the ruble.
Still, absent a very sharp decline in the ruble, we do not think a USD/RUB near 61 will prevent the CBR from cutting its key rate by 25 bps to 8.75% at its next meeting, on September 15. Indeed, July CPI data, due today, should show the y-o-y rate slowed to 4.3% from 4.4% in June.
> Bottom line. We favor USD/RUB pushing back above 60.50.