Russia FX Beat - November 23, 2017

> Today's focus. US holiday, but dollar set to soften.
> Global trigger: Slightly dovish Fed. The minutes to the Fed's early November meeting, released overnight, indicate that the central bank will raise rates by 25 bps on December 13 to 1.5%, as has long been expected. But it is clear that nervousness regarding persistently low inflation is increasing.
Given that the Fed appears to have pre-determined that it will hike next month, the market's reaction to the concern over low inflation was to scale back pricing for tightening in 2018. End-2018 implied Fed funds futures yesterday fell by around 4 bps.
There is a growing risk that next month the Fed will come out with a dot plot pointing to just two hikes in 2018 instead of three. With the new Fed chair Powell starting in February, January's meeting is a nonevent. Powell might not want to hike rates at his first meeting in March, and the Fed has not raised rates at a non-quarterly meeting (such as in May) in this tightening cycle, so it is possible to envisage the first hike next year only arriving in June.
Today is quiet, with the US shut for the Thanksgiving holiday. The ECB's minutes to its October meeting, when it extended QE, are released at 15:30 Moscow time. That day, EUR/USD fell 1.4%.
> Bottom line. A quiet day, but EUR/USD can target 1.1850.
> Regional trigger: Nabiullina stays cautious. Weekly CPI data was dovish. Prices were flat in the week to November 20. It increasingly looks like y-o-y CPI will decline this month from the 2.7% reported in October and possibly end the year near 2.5%.
Yet the CBR continues to indicate that it will cut by just 25 bps on December 15. Yesterday, CBR Governor Nabiullina, speaking in front of the Duma, said the population's inflation expectations had fallen to 8.7% from 9.9%, according to surveys taken by the CBR in October. Despite the significant drop in expectations, Nabiullina thinks that they are still high and cautioned against cutting the key rate too fast.
Yesterday was a very positive day for EM FX and in particular the ruble, which was a top performer, rising over 1% against the dollar. EM sentiment was good, oil prices rose and OFZ auctions enjoyed strong demand. With Monday's main tax day approaching, the ruble can stay strong in the near term.
> Bottom line. Strong exporter sales of FX could force USD/RUB toward 58.20.