Russia FX Beat - November 22, 2017

> Today's focus. US inflation "mystery" as yield curve flattens.
> Global trigger: Treasury curve flattening. EUR/USD is steady near 1.1750, and with the US Thanksgiving holiday tomorrow, it is unlikely to move far from this level over the rest of this week. On the euro side, investors will keep a close watch on developments surrounding the formation of a new government in Germany, which is necessary to avoid new elections.
Overnight, outgoing Fed Chair Yellen spoke of the "mystery" of low inflation this year and said that there was "some hint" that inflation expectations were drifting lower. This does not affect the likelihood of a 25 bp rate hike on December 13, which remains fully priced in. But it does relate to the continuing aggressive flattening of the UST curve. Yesterday, the 2-30y spread dropped below 100 bps for the first time in 10 years. Some take this as a sign that US growth is near its peak and that the longer-term outlook for activity and inflation is weakening.
Today, US October durable goods order data is due at 16:30 Moscow time, and FOMC minutes to the Fed's November 1 decision at 22:00. In the UK, the government unveils its budget to parliament at 15:30. GBP might be volatile.
> Bottom line. The 93.60 area on the DXY Index offers strong support and should hold.
> Regional trigger: Gradual easing. CBR Governor Nabiullina is speaking in front of the Duma as we write and has said that household inflation expectations are high but that there is still room to ease policy gradually. Current CPI of 2.6% y-o-y is seen as close to the CBR's goal. Cautious language like this is consistent with our forecast for the regulator to cut 25 bps to 8% at its next meeting.
Yesterday, the CBR offered R448 bln of 3m coupon bonds but demand was very low - at just R13 bln. Banks are reluctant to lock up money for 3m, since the CBR has high enough limits at its 1w deposit auctions, which allow banks to lend at almost the key rate. Given compounding interest, banks earn 7-8 bps more by placing funds via 1w deposits than holding coupon bonds.
The ruble is finding support from a more positive risk environment and strong oil prices. WTI prices are pushing toward a new cycle-high near $58/bbl, and the market will digest US EIA inventory (18:30) and US oil rig (21:00) data today. Weekly CPI data will be released at 16:00.
> Bottom line. USD/RUB can push below 59 if oil prices continue marching higher, ahead of the tax period at month end.