Russia FX Beat - February 2, 2018

> Today's focus. US jobs data, CBR lines up 25 bp rate cut.
> Global trigger: Jobs day. The dollar resumed declining yesterday, making the post-Fed decision rise short-lived. Overnight, EUR/USD climbed to above 1.25, completing a more than full cent recovery, having traded below 1.24 a day earlier.
A more market-determined Chinese yuan is participating in the dollar downtrend. USD/CNH has declined by 3.5% so far this year and is now below 6.30. The pair is close to the 6.20 level that triggered a 1.5% yuan devaluation back in August 2015. Year-end forecasts for the yuan are being adjusted, with some analysts suggesting USD/CNH might even approach 6.00.
Today's data focus will be the US jobs report at 16:30 Moscow time. This week's Fed statement described the gains in employment as "solid." Today's consensus is for an 180,000 rise. This month's annual revision to the historical data might confuse things a little. Investors would latch on to a rise in average earnings from last month's 2.5% y-o-y figure.
Over the weekend Jay Powell takes over the leadership of the Fed while Germany will look to conclude coalition negotiations.
> Bottom line. The dollar is delinked to US data, meaning that EUR/USD could trade higher even on a solid jobs report.
> Regional trigger: CBR to move faster to neutral policy rate. Most of yesterday the ruble traded in a narrow range, hovering near 56.25. As in the last few days, there was again a strong local bid, which even pushed USD/RUB temporarily above 56.4. However, this faded out later in the day, and the ruble managed to gain 0.5%, in line with the EM average. This was caused by global dollar weakening and oil rising back to almost $70/bbl.
Yesterday, CBR Governor Elvira Nabiullina said that the bank would "transition to neutral monetary policy slightly faster than [we] had expected before." This past December she had said that she expected to see the key rate decrease to the promised 6-7% within the next two years. Taking into account the current very low inflation, we expect 6% rather than 7%. Yesterday's comments suggest us that the inflation-neutral level will be hit no later than mid-2019. We think her comments cement the market consensus of a 25 bp cut next Friday; they are dovish enough to suggest such a cut, whereas 50 bps would seem overdone.
> Bottom line. Today, some profit taking in the ruble may take place prior to the NFP release and ahead of the weekend. If US jobs data turns out to be good, USD/RUB should move back to 56.3.