Russia FX Beat - December 13, 2017

> Today's focus. Fed to hike 25 bps, keep 2018 three-hike view?
> Global trigger: All about the Fed. There is plenty for investors to get their teeth into today, with the focus heavily on the US. The main event comes late in the day with the Fed's rate decision at 22:00 Moscow time. The outcome is a foregone conclusion, with a 25 bp hike to 1.50% fully priced.
If there is to be a market reaction, it will be to the Fed's rhetoric. This could come from the statement, the "dot plot" or Yellen's press conference, which starts at 22:30. There is little reason for a major change in tone. The economy continues to grow moderately, CPI is stubbornly below 2% and President Trump's tax plan is yet to be passed (a task made harder with the overnight loss of a seat in the Senate for the Republican Party). Most likely, the Fed will keep a projection for three hikes in 2018 and a neutral platform for incoming chair Jerome Powell.
Prior to the Fed decision, the US releases November CPI data at 16:30. While headline CPI is expected to climb above 2% y-o-y, core CPI is seen flat at 1.8% y-o-y. An upside surprise here would boost a dollar that was already in the ascendancy yesterday.
> Bottom line. The yen is most sensitive to UST yield moves. If the UST 10y yield can punch up through 2.40% on the Fed's decision, USD/JPY could go on to test key resistance at 114.50.
> Regional trigger: Oil-driven. The ruble was well supported through much of yesterday, with USD/RUB reaching a low of 58.80. However, it slipped later in the session as the dollar rallied and oil prices fell. Over the last three days, USD/RUB and the Brent price have traded very closely. Absent any surprises from the Fed tonight, this may well remain the case.
A volatile oil price could be further affected today by the release of US EIA oil inventory data at 18:30. Crude inventories as measured by the API fell 7.4 mln bbl last week. The consensus is for the EIA data to show a 3 mln bbl drop.
In Russia, the Finance Ministry will offer up R40 bln of OFZs at today's auction (with 2021 and 2028 maturities). Elsewhere, the CBR will receive a final piece of information prior to its rate decision on Friday. CPI for the week ending December 11 will be published at 16:00. A flat reading would keep alive the possibility that inflation will end the year below the current 2.5% y-o-y.
> Bottom line. USD/RUB yesterday halted its oil-inspired downward trend. We expect it to hold above 59 today.