Russia FX Beat - January 26, 2018
> Today's focus. Trump to address Davos and US 4Q GDP.> Global trigger: Currency wars? The specter of currency wars has returned after ECB President Draghi yesterday aggressively responded to this week's comments from US Treasury Secretary Steven Mnuchin in favor of a weaker dollar. Draghi said that the US appeared to be competitively devaluing the dollar, which would go against the norms of the G20.
Late yesterday, the dollar reversed some of its losses after a conflicting remark from President Trump that the dollar would strengthen and that ultimately he wanted the dollar to appreciate. However, the damage has already been done, and the overall impression markets were left with this week is that the US government will gladly accept, or even encourage, a weaker dollar.
Today's focus will clearly be on a speech by Trump, penciled in for 16:00 Moscow time. Shortly after this, at 16:30, the US releases 4Q GDP and durable goods data.
> Bottom line. In all, this week has damaged the dollar outlook and may warrant a lowering of our broad expectation for the dollar this year by 5% or so. For today, EUR/USD could easily retest the 1.25 level.
> Regional trigger: Awaiting US sanctions report, tax period almost over. Yesterday, the ruble appreciated 0.45% against the dollar and caught up to peers it had been lagging two days ago. It was supported by significant FX selling by exporters, who needed rubles to pay MET taxes before yesterday's deadline. After Draghi's press conference, which started at 16:30 yesterday, broad dollar weakness resumed, and USD/RUB even managed to briefly dip below its 2017 low of 55.7. However, it later pulled back to 55.9 as the dollar strengthened and oil retreated from $71/bbl.
Today, the ruble's upside potential seems limited, even though the dollar could weaken again, as exporter FX sales will likely diminish: profit taxes are due on Monday, but the amount owed is much less than for the MET. Next Monday is also the deadline for the release of the US sanctions report. However, there is a risk that some info may come out over the weekend, so internationals will probably be very cautious and may decide to take some profits in the ruble ahead of the weekend.
> Bottom line. USD/RUB may hover near 55.8 ahead of the US sanctions report despite dollar weakness.
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