Russia FX Beat - July 17, 2017

> Today's focus. Dollar under fire as US data underwhelms.
> Global trigger: Dollar slide. The dollar fell sharply last week, its losses accelerating on Friday following weak US CPI and retail sales data for June. Inflation was flat and consumer spending contracted, casting doubt on expectations for a rebound in US GDP in 2Q. Currencies like the ZAR and AUD advanced over 3% against the dollar last week as the DXY fell to its lowest level since September.
The week ahead may provide some respite to the dollar, if only because the US schedule is quiet. Empire state manufacturing data is due today (15:30 Moscow time), while the Fed enters its blackout period ahead of next week's rate decision. This morning, China reported 2Q GDP growth of 6.9% y-o-y, maintaining the pace of 1Q.
Thursday's ECB meeting will probably be a main focus for the markets this week. The Eurozone growth outlook is brightening, but below-target inflation and a surging euro will likely keep ECB President Draghi cautious this time around, ahead of a potential meaningful change in stance in September. In addition, this week sees a flood of 2Q corporate earnings results from the US.
> Bottom line. The 94.75 area represents key support for the DXY Index over the week ahead.
> Regional trigger: Corporate support for ruble. The ruble recorded strong gains in the second half of last week, helped by the softening dollar and heavy sales of FX by Russian companies. As the bulk of July tax payments (July 25-28) and a key dividend payment period (July 17-August 3) is nearing, the ruble may make further gains. With respect to dividends, some R700bln+ is expected to be paid out.
The July 28 CBR policy meeting is approaching. We think that a 25 bp rate cut or a no-change are on the table. Comments last week from CBR officials reflected their confidence that the recent rise in CPI was temporary. But inflation expectations, which are an increasing focus, have emerged as an obstacle to a reduction this time around (an unadjusted gauge stayed above 10% in June). With the decision hanging in the balance, the ruble's path over the coming days could prove decisive.
As has been the case in the week prior to recent decisions, the CBR might give investors clear guidance on the policy options under consideration for next week. Russia reports June consumer and labor market data on Wednesday.
> Bottom line. Heavy sales of FX might pressure USD/RUB further, pushing it below 59 today.