Russia FX Beat - November 1, 2017

> Today's focus. Fed nonevent; ADP and ISM data due.
> Global trigger: Fed day. The dollar's performance was mixed yesterday, with commodity currencies such as the Russian ruble, South African rand, Canadian dollar and New Zealand dollar underperforming. EUR/USD again traded flat near 1.1650. The euro was unharmed by poor October eurozone inflation data, which saw core CPI drop below 1% y-o-y.
Today's focus is on the Fed rate decision at 21:00 Moscow time. With no change to rates expected and the FOMC statement set to be almost unchanged, this is as close to a nonevent as it gets. We anticipate little market reaction. Prior to the decision, the US sees ADP employment (15:15), which will provide clues ahead of Friday's labor report. ISM manufacturing data is due at 17:00.
The release of the Republican House tax bill has been delayed a day to tomorrow, which is also when President Trump is expected to name his nominee for Fed chair and when the Bank of England is set to hike rates for the first time in 10 years.
> Bottom line. We see today's Fed decision as neutral to slightly positive for the dollar. EUR/USD might edge toward 1.16.
> Regional trigger: Brent hits $61/bbl. The ruble underperformed yesterday despite the fact that Brent broke above $61/bbl. For now, the currency is ignoring the bullish oil trend and instead catching up with recent EM FX weakness.
Trading activity has been decent. MICEX volumes yesterday approached $6 bln. Exporters were seen selling FX, while this was possibly offset by ruble selling owing to Telia's sale of its 19% stake in MegaFon to Gazprombank.
Our economists released an update on Kazakhstan yesterday. The tenge has underperformed since midyear despite a rise in oil prices. This is likely due to increased FX demand from corporates and the population, which led to FX interventions by the central bank. We look for the tenge's underperformance to continue in 2018 and see USD/KZT targeting 355.
Today, weekly Russian CPI is due at 16:00. Yesterday, the CBR released inflation expectations data for October, which showed a disappointing rise to 9.9% from 9.6% last month. The CBR also warned of rises in coming months, supporting our base case of a 25 bp rate cut at the CBR's December meeting.
> Bottom line. USD/RUB might hold close to 58 ahead of US EIA oil inventory data at 17:30.