Russia FX Beat - January 19, 2018

> Today's focus. US government shutdown nears.
> Global trigger: Shutdown? Investors are focused on a looming government shutdown, which will start at midnight tonight unless US lawmakers pass a funding bill. Overnight, the House passed a bill to keep the government running until February 16, but its passing the Senate is proving tougher.
While this political wrangle injects additional noise into financial markets, it does not offer a clear trade. Dollar performance is mixed, although safe havens like the yen and franc are outperforming, while UST yields are grinding higher.
Today is rather quiet in terms of important data releases. US consumer sentiment is due at 18:00 Moscow time. The inflation expectations component may be of heightened interest given the current Fed debate.
> Bottom line. We are neutral on the dollar given the binary outcome of today's US government shutdown risk.
> Regional trigger: Three options. Yesterday, CBR Monetary Policy Department head Igor Dmitriev said the bank was considering cutting the 7.75% key rate by 25 and 50 bps, in addition to leaving it unchanged, at the February 9 meeting. He also said that inflation should rise to 2.5% y-o-y in 1Q before decelerating back to 2% in 2Q. The CBR expects inflation to rise to its target of 4% only in 1Q19. Dmitriev cautioned that there were many other possible outcomes. Dmitriev's remarks show that a 25 bp cut in February is a growing possibility and the CBR's tolerance for low inflation.
Oil prices continue to grind lower, with the Brent price edging below $69/bbl. In its latest monthly report, OPEC revised upward its forecast for non-OPEC oil supply growth this year by 15% to 1.15 mln bpd. This comes ahead of an OPEC+ meeting this weekend in Oman to review the current output cut deal. Markets may wake up to several oil-related headlines on Monday.
Since the start of the year, the ruble has lagged most other currencies in terms of gains made against the dollar. We think this is because of government purchases of FX and apprehension over the US sanctions report due at month end. Ruble underperformance may therefore continue through to January 29; investors may revisit exposure to Russian assets thereafter.
> Bottom line. USD/RUB may edge up toward resistance near 56.85 today.