Russia FX Beat - November 9, 2017

> Today's focus. Subdued dollar allows USD/RUB a breather.
> Global trigger: Absence of volatility. As we had suggested would be the case, the dollar fared poorly yesterday on indications that US tax reform is running into complications. This should be no surprise, as immediate passage of such a bill is impossible. Substantive progress by the year end would be an achievement.
We note that short-term US yields (i.e. 2y USTs and swap rates) are pushing sharply higher. The US 2y note is now above 1.60% for the first time since 2008, and this is lending support to the dollar. Yesterday, EUR/USD again attempted to push below 1.16.
However, overall, so far this month the dollar has been remarkably stable. The DXY Index, for example, has been largely stuck between 94.50 and 95. It has been a similar picture for EUR/USD, which has failed to demonstrate conviction to hold below 1.16. At close to 6%, EUR/USD three-month implied volatility has broken beneath its June low to reach the lowest since 2014.
Today's schedule is quiet. Several ECB officials speak, and the US releases weekly initial jobless claims. UK-EU negotiations will resume amid hopes of a Brexit deal breakthrough.
> Bottom line. It is hard to identify an immediate reason for EUR/USD volatility to pick up. EUR/USD should stay near 1.16.
> Regional trigger: Subdued OFZ demand. Yesterday, the ruble again underperformed its EM FX peers. While the likes of the South African rand, Brazilian real and Turkish lira all appreciated 0.5-0.7% against the dollar, the ruble edged up 0.2%.
This underperformance probably owed to a correction in the OFZ market. Papers maturing in 2023-26 ended yesterday 7-9 bps higher in yield, with other papers adding 4-5 bps.
The Finance Ministry managed to place R10 bln of 15y OFZs at yesterday's auction, but it failed to sell the entire amount of the 7y issue on offer, finding demand of just R13 bln for the R15 bln offered. This was the first time since September that it failed to sell the entire amount on offer. Most likely, international investors are finally starting to sell paper that had been quite resilient to the weakness in EM local debt over the last couple of weeks.
Today's weekly Russian CPI data (16:00 Moscow time) could confirm that inflation remains very subdued. The CBR's head of monetary policy, Igor Dmitriev, speaks at 18:30.
> Bottom line. We see few catalysts for USD/RUB today and expect a 59.10-59.50 range to prevail.