Russia FX Beat - July 13, 2017

> Today's focus. Day 2 of Yellen's semiannual testimony.
> Global trigger: Dovish Fed, volatile oil and a weak dollar. The DXY lost almost 0.5%, 10y US Treasuries shed 6 bps in yield, US stocks posted gains and global currencies rallied on the back of Janet Yellen's dovish comments yesterday in her first day of testimony to Congress. Yellen expressed concern over persistently low inflation, which caused rate hike expectations to ease. Her comments were similar to those after the June meeting when it came to monetary policy but more cautious on inflation. She also confirmed that the Fed will start reducing its balance sheet this year, without providing details on the timing.
Today the focus will be on the second day of Yellen's testimony (starting at 17:00 Moscow time) and a speech from Chicago Fed President Charles Evans on economic and monetary policy (11:30 EDT). The Canadian dollar gained more than 2% on the greenback yesterday after the Bank of Canada's first rate hike in seven years.
The EIA's weekly inventory data yesterday showed a 7.5 mln bbl drawdown in crude inventories due to increased refinery runs, which triggered a brief spike in oil prices. However, a rise in exports to nearly 1 mln bpd and a 59 kbpd increase in domestic output eventually overshadowed the positive inventory surprise, pushing Brent to an intraday low of $47.35/bbl.
> Bottom line. EUR/USD may test resistance at 1.1456.
> Regional trigger: Weak oil prices and negative ruble flows. The knee-jerk reaction to the oil data and a weaker dollar were supportive for the ruble and EM currencies yesterday, pulling USD/RUB to an intraday low of 59.90. However, a strong bid appeared later on, lifting the ruble to the 60 mark and higher.
We think that the conversion of Norilsk Nickel dividends by DR holders, which is negative for the ruble, has not yet ended, while the deadline for Rosneft's R63 bln dividend payout (July 17) is approaching, which could potentially generate some FX selling.
Elsewhere, yesterday's CPI data showed weekly inflation returning to the normal 0.1% level in the week ending July 10. Vegetable prices, which had been the main driver of inflation in the previous weeks, fell 0.7%. This suggests that the long-awaited seasonal drop in food prices, which was delayed this year by bad weather, is probably underway.
> Bottom line. We expect USD/RUB to rise back toward 60.40.