Russia FX Beat - December 20, 2017

> Today's focus. Tax reform as good as done. Oil inventories.
> Global trigger: US tax reform. US President Trump is set to deliver on his target of major tax reform before the year end. Overnight, the US Senate passed a final tax reform bill. Today, the House will inevitably pass the same bill, after its vote yesterday was annulled due to a procedural error. Trump plans to hold a press conference at around 20:00 Moscow time.
Passing tax reform would be a major legislative landmark for Trump, even if the details of the bill are not particularly popular. The most prominent is a cut in the corporate tax rate from 35% to 21%, moving it in line with fiscal policy in other developed markets.
However, it is clear that tax reform is no longer expected to deliver the sizable boost to US growth and the dollar that it once was. Most Fed officials already incorporated the new laws into their revised projections from last week. The legislation is unlikely to lead to a more hawkish Fed rate hike trajectory.
> Bottom line. The data schedule is quiet today. UST 10y yields have rebounded close to resistance near 2.46-2.48%. A move above this would support the dollar and keep EUR/USD anchored near 1.18.
> Regional trigger: Tax deadline nears. The market is thinning as the year draws to a close. Decent demand for rubles ahead of the December 25 tax deadline (for which we expect R850 bln to be paid) helped pressure USD/RUB below 58.60, before a sudden push back above 58.80 later in the session.
The CBR yesterday commented that it did not expect FX liquidity issues heading into the year end, supporting a view that USD/RUB should hold in a 58.50-60.00 range over the coming days.
According to TASS, CBR official Alexander Morozov remarked that the key rate might reach 6.5% next year. However, on Bloomberg Morozov was reported as saying that it may take two years for the key rate to reach 6.5%. Either way, our view is that the CBR will proceed cautiously with easing in 2018 and cut rates by 100 bps to 6.75%.
Today sees weekly Russian CPI data released at 16:00 and, more relevant for the ruble, US EIA oil inventory data at 18:30. The consensus looks for a 3.2 mln bbl decline in crude stockpiles, after the API reported a 5.2 mln bbl fall overnight.
> Bottom line. With EM sentiment intact, ruble-positive tax flows together with any Brent move above $64/bbl could help USD/RUB below 58.50.