Russia FX Beat - November 28, 2017

> Today's focus. Incoming Fed chair Jerome Powell to testify.
> Global trigger: Powell time. EUR/USD whipsawed yesterday, climbing to 1.1960 before dropping back below 1.19. Strong US home sales data helped the dollar to recover from its lows.
Although the dollar is near the weak end of its recent ranges against G10 FX (e.g. EUR/USD near 1.19), we think it could benefit from US tax reform progress. The Senate may vote on its bill on Thursday, and yesterday President Trump tweeted that the reform is "coming along very well." Traders, we suspect, will know better than to trade on the basis of this.
Today's main event is incoming Fed chair Powell's confirmation hearing at 18:00 Moscow time. His introductory comments released overnight were uncontroversial, stating that US rates will rise "somewhat further." Today's event should go smoothly, but we will still watch closely. Several other Fed members also speak today.
> Bottom line. EUR/USD to hold close to 1.19 today.
> Regional trigger: Rand recovery. The ruble strengthened early yesterday, USD/RUB touching a low of 58.04. Its gain was driven mainly by positive EM FX sentiment, with the South African rand and Turkish lira gaining around 3% and 1.5%.
With that in mind, and given that yesterday was this month's main tax day, the ruble's negligible gain was disappointing. Exporters were relatively quiet, seemingly having sold enough FX last week, and late in the session USD/RUB edged back close to 58.50.
The rand is the main focus in EM currency markets. Yesterday, it staged a remarkable 3% rally after Friday's 2% selloff. The rebound is hard to comprehend. One theory is that the prospect of further sovereign rating downgrades could spur a constructive fiscal response from the government. The rating moves were well-flagged, so we think most investors had already reduced exposure.
The situation in South Africa could prove to be to the benefit of Russia. Russia's local debt ratings are on average investment-grade and on review for upgrade. OFZs could attract some of the money tracking investment-grade local-currency bonds that leaves South Africa (see "OFZ - South African Bonds Drop Out, Russian Bonds Stand to Benefit," released yesterday).
> Bottom line. USD/RUB yesterday bounced off its 200-day moving average of 58.10. A move above 58.50 today is possible, but the ruble should get support from exporters, with some R180 bln of profit taxes due today.