Russia FX Beat - January 23, 2018

> Today's focus. US oil inventory data eyed.
> Global trigger: US government reopens, no BoJ policy change. The US federal government gets back to work today. The US Congress passed a fourth straight temporary spending bill yesterday, which will last until February 8. Some Democrats agreed to approve the legislation after Republican leaders offered to consider their demands for immigration law. Against this backdrop, the dollar gained some support and the S&P 500 reached a new record high. However, dollar weakness has resumed, as political uncertainty remains. Democrats and Republicans still have strong disagreements over immigration, so a final spending bill is unlikely to be passed in the next three weeks. This means another government shutdown is possible.
Today, the BoJ maintained its monetary stimulus program and kept its economic forecasts unchanged. The only notable change was in the statement, where it was noted that inflation expectations had stopped falling. Given the yen's recent appreciation, the BoJ remains cautious and does not want to boost market expectations of monetary policy tightening, which some investors have started to anticipate amid a growing economy and slowly but steadily rising inflation.
> Bottom line. The dollar remains weak near three-year lows and is unlikely to rebound today. EUR/USD should stay near 1.225.
> Regional trigger: Taxes and oil push ruble higher. Yesterday, the ruble moderately appreciated, gaining support from Brent's bounce back above $69/bbl on a stronger global growth outlook. The IMF raised its forecasts for global GDP growth in 2018 and 2019 by 0.2 pp, to 3.9% y-o-y for both years. Moreover, investors have started pricing in a decline in US crude inventories (the latest Bloomberg survey pointed to expectations of a 2.25 mln bbl decline in this week's data). The API's weekly inventory update is due overnight at 00:30 Moscow time.
The ruble was also supported yesterday by increased FX selling by exporters, which need to pay record-high MET taxes by Thursday. They have preferred to sell hard currency at intraday highs, but with the deadline approaching, some may start selling at any rate. Therefore, these flows could further intensify today. Oil prices continued to advance this morning, and Brent is now trading just below $69.5/bbl, so we expect the ruble to extend its gains.
> Bottom line. USD/RUB to head toward 56.3.