Russia FX Beat - June 20, 2017

> Today's focus. Ruble downturn gathers momentum.
> Global trigger: US yield bounce. The confidence over the US economic outlook that the Fed showed last week has spilled over into this week, pushing UST yields higher and supporting the dollar.
The UST 2y has climbed back above 1.35% and is testing its highest yield since mid-March. The trigger yesterday was commentary from NY Fed Governor Dudley, who said that the current US economic expansion has a "long way to go," and that wage growth will "quicken." In their current mood, markets brushed off more cautious comments from another Fed voter, Charles Evans, who said that if inflation continues to come in low, the Fed could wait until December before next raising rates.
Over the coming weeks, it will be worth watching to see if US interest rate futures start to price in higher rates. Currently, they imply a less than a 50% chance of another 25 bp hike before the year end. In our view, this is underpriced; we expect the next hike to come in September.
Today the US sees several other Fed representatives talk, while 1Q current account data is due at 15:30 Moscow time. The schedule is quiet outside of this, with the dollar set to stay bid.
> Bottom line. DXY can grind higher toward a test of 97.75.
> Regional trigger: Ruble reversal. The ruble continued its slide yesterday and has now fallen in each of the last four trading sessions. Its decline of 2.5% over this period makes it the worst performer against the dollar among major currencies.
Yesterday the ruble was under pressure immediately from the market open, with USD/RUB breaking through 58 with ease and continuing toward 58.50. EM FX in general is performing weakly, and periods in which large local sellers of FX in the Russian market are absent have been resulting in a very supportive USD/RUB environment. Oil prices are offering no real support, with Brent now trading below $47/bbl.
Today sees Russia release May unemployment, retail sales and real wage data at 16:00 Moscow time. Last Friday, the CBR said that economic activity "continues to recover," but that this is not a source of inflationary pressure. It revised upward its GDP forecast for 2017 to 1.3-1.8% y-o-y.
> Bottom line. In a more constructive dollar environment, a test of the early-May high of 58.80-58.90 is highly likely.