Russia FX Beat - October 16, 2017

> Today's focus. Quiet day. Risks stem from Catalonia and Iraq.
> Global trigger: Catalonia deadline. Underwhelming US CPI data on Friday knocked the dollar, but the currency is starting this week on the front foot, helped by comments from Fed Chair Yellen over the weekend. Although Yellen acknowledged that inflation has been surprisingly soft and that the central bank will pay close attention to forthcoming data, she also said that her "best guess" is that low inflation will not persist. Yellen referred to the "encouraging" hourly earnings data from September.
Also helping EUR/USD dip below 1.18 this morning was news that Catalan President Carles Puigdemont was set to miss an 11:00 (Moscow time) deadline to state whether the region had declared independence from Spain. This now risks Spanish PM Mariano Rajoy taking steps to suspend Catalonia's autonomy. Until now, this crisis has not weighed much on European assets overall, but the risk that it will is increasing.
For the rest of this week, the schedule is relatively quiet, and there is an absence of top-tier US data. On Thursday, China releases 3Q GDP, while on Friday, EU leaders meet for a summit. This will see an important review of the progress that has been made so far on Brexit negotiations. On Friday, Fed Chair Yellen will also give a speech on monetary policy.
> Bottom line. EUR/USD is steady below 1.18, but the deterioration in Spain suggests a downward bias.
> Regional trigger: Iraqi-Kurdish conflict. The ruble gained on Friday, helped by higher oil prices and a broadly softer dollar. In early trading this morning, a further push higher in the Brent price to $58/bbl has taken USD/RUB to a test of 57.
The climb higher in oil prices was the result of renewed tensions in Iraq, in a region with some of the nation's most established oil fields. Over the weekend, Iraqi forces moved toward the city of Kirkuk, risking clashes with Kurdish forces. Iraq is OPEC's second largest oil producer, pumping close to 4.5 mln bpd. The Kirkuk oil fields reportedly produce around 0.5 mln bpd. Whether this can lead to a test of late-September's $59.5/bbl remains to be seen.
> Bottom line. Over the weekend, Russian Economy Minister Maxim Oreshkin said the ruble was close to its fundamentally justified level. The oil price will be the main driver today, with the potential for a USD/RUB move below 57.