Russia FX Beat - November 29, 2017

> Today's focus. North Korean missile test. Yellen to testify.
> Global trigger: Yellen's turn to talk. Incoming Fed chair Powell's testimony passed off smoothly, with him commenting that the case for a December rate hike was "coming together." Today it is the turn of outgoing chair Yellen, who will testify to Congress at 18:00 Moscow time. Further color from the Fed will come at 22:00 with the release of the Beige Book.
Data-wise, we will watch for German CPI at 16:00. A rise in the y-o-y rate is expected and would likely feed into tomorrow's eurozone CPI report. A revised US 3Q GDP growth estimate will be released at 16:30 and might be up slightly from the initial 3%.
Overnight, North Korea conducted a missile test, after which it claimed it had become a country with full nuclear capability. Markets were little altered. In the US, the Senate tax bill has been advanced for voting, potentially as early as tomorrow.
> Bottom line. The DXY Index is steady near 93.0.
> Regional trigger: A 50 bp cut? USD/RUB was little changed yesterday, as demand for rubles from exporters on the final tax day of the month was offset by investors' selling.
News flow from Russia is keeping alive the possibility of a 50 bp rate cut from the CBR next month, but we are not convinced. The CBR confirmed yesterday that inflation expectations slid to a new low of 8.7% this month from 9.9% in October. Yet the perception of a still-elevated level of inflation is a key obstacle, and the CBR will want expectations to fall further. Elsewhere on the inflation front, weekly Russian CPI is due today at 16:00.
CBR First Deputy Governor Ksenia Yudaeva commented yesterday that if the US placed sanctions on investment in Russian sovereign debt, this would lead to short-term volatility. The CBR has said previously that OFZ yields could rise by 30-40 bps. A survey by Bloomberg this week shows that 70% of analysts expect yields to rise 50-150 bps. The US Treasury is due to report on the viability of such a measure at the end of January.
For now, the EM FX focus is away from Russia and on the likes of Turkey and South Africa. The Turkish lira fell sharply yesterday, taking USD/TRY back close to 4 as the US progressed a court case connected with Iranian attempts to evade US sanctions. Meanwhile, the South African rand gained again, finishing 4% above Friday's post-downgrade low.
> Bottom line. USD/RUB is trading in a narrow range. We doubt it can push through support near 58.10.