Russia FX Beat - November 14, 2017

> Today's focus. Major central bank heads speak amid EM selloff.
> Global trigger: Big 4 speak. The euro is appreciating this morning, boosted by an impressive 0.8% Q-o-Q rise in 3Q German GDP, which took the annual pace to 2.8%. This implies upside risk to the 0.6% consensus figure for the entire eurozone that will be released at 13:00 Moscow time today. In addition, the ZEW survey of investor sentiment in Germany and eurozone industrial production are due.
That time (13:00) is also when a panel discussion with monetary policy heavyweights Yellen, Draghi, Carney and Kuroda will get underway.
The dollar was generally well supported yesterday, gaining against almost all other currencies. A rather risk-off mood has taken hold of financial markets recently, so higher-yielding commodity currencies, i.e. AUD and NZD, might struggle somewhat.
> Bottom line. EUR/USD is set to breach 1.17 today.
> Regional trigger: Ruble vulnerable. Late last week, the CBR updated its Monetary Policy Guideline. The key takeaway is that it lowered its estimate of the inflation-neutral real policy rate from 2.5-3% to 2-3%. Given a CPI target of 4%, this translates into 6-7% on the CBR's key rate, compared with 6.5-7% previously.
The reduction of some 50 bps is significant inasmuch as the CBR has long touted a 6.5-7% neutral interest rate. Although we do not think this is an immediate game-changer, it indicates that if inflation stays low, the key rate could end 2018 below our year-end forecast of 7%.
Yesterday, a loan of close to $1 bln was repaid to VTB ahead of schedule. This will improve the FX liquidity situation in the banking system, which has been one of the concerns overhanging the ruble going into year end.
> Bottom line. For the time being, the ruble looks set to remain under pressure, hampered by the deterioration in global risk sentiment. EM FX and bonds are weaker across the board and Russia is no exception, OFZ yields having moved around 5 bps wider yesterday. That is being driven by foreign investors, while exporters are not providing much support. USD/RUB has a good chance to close above 59.50 today.