Russia FX Beat - November 7, 2017

> Today's focus. Oil price surges on Saudi news. CPI data due.
> Global trigger: Changes at the Fed. Global markets were quite quiet yesterday, with most currencies moving less than 0.5% against the dollar.
Yesterday's main news was the announcement that New York Fed President Bill Dudley is to retire in mid-2018. The position of NY Fed president is the third most important at the Fed due to its connections to Wall Street and the US financial system. It also enjoys a permanent FOMC vote. Dudley's departure means that at least three of the Fed's Governing Board members will leave over a short period, opening the door to a different approach to decision making. Fed Chair Yellen steps down in February, while last month Vice Chair Fischer retired.
Today's focus will remain on central banks. ECB President Draghi is due to speak at 12:00 Moscow time, while Fed Chair Yellen might provide comments late in the day at 22:00.
> Bottom line. EUR/USD is set to test its recent 1.1575 low.
> Regional trigger: Oil prices surging. Russian markets reopen today after a holiday yesterday. On Friday, the ruble fell sharply, punching its way out of its recent trend channel. USD/RUB broke above 59 to reach a high of 59.28, the highest since mid-August. The 1.5% d-o-d rise was the biggest since mid-June.
However, oil prices are surging, with Brent close to $65/bbl and some analysts talking of a move toward $70/bbl. The tightening oil market, strengthening global economy and recent government crackdown on corruption in Saudi Arabia have unnerved oil investors. Although the correlation between the ruble and Brent has dropped to almost zero recently, the ruble cannot ignore such a sharp and sudden oil move. USD/RUB has consequently dropped back to close to 58.20. Outside of oil prices, our view is that the natural drift of the ruble is weaker, and expect USD/RUB to move toward 58.50.
The main focus data-wise, near-term, is October Russian CPI, due today or tomorrow. The Bloomberg consensus looks for the headline y-o-y rate to dip to a new record low of 2.8% from 3.0%. While this might embolden some to call for a large rate cut from the CBR, we see almost no chance of this. We expect another 25 bp reduction on December 15.
> Bottom line. Strong USD/RUB support is seen in the 58.00-58.10 area. We prefer to sell the ruble near such levels.