Russia FX Beat - October 4, 2017

> Today's focus. ADP, Yellen comments, Russia FX intervention.
> Global trigger: Distorted ADP. The recent dollar rally paused yesterday. Today markets will focus on comments from Fed Chair Yellen this evening at 22:15 Moscow time. It is unclear whether these will be market-relevant. Prior to this, the US sees ADP employment (15:15). The ADP data is likely to be depressed by the recent US hurricanes, rendering it hard to interpret. Still, investors will use it as a yardstick ahead of Friday's September jobs report.
Overnight reports suggest that President Trump has been handed a shortlist of candidates to lead the Fed. Current Chair Yellen, whose term ends in February, is said to be on the list but has little support. A decision and announcement are quite possible within the next two weeks.
While this decision has the potential to roil markets, in general the dollar looks well supported in the near term, backed by a looser fiscal/tighter monetary policy mix. As we have noted, this could take EUR/USD to the 1.15-1.16 area. However, we suspect that doubts that such a policy mix can prevail over the medium term will surface before too long.
> Bottom line. We would suggest selling any EUR/USD rally triggered by a weak ADP employment report today.
> Regional trigger: FX interventions to rise. At 12:00 today, the Finance Ministry announces its FX interventions for October. We expect FX purchases to be set at around R110 bln/$1.9 bln for the month ($90 mln per day), an increase of around 50% on last month. If this is the case, it will be the largest month of intervention since the launch of the program in February. A higher oil price, especially in ruble terms, is the main reason for an increase. That said, we doubt this daily flow would have a significant market impact. Higher intervention, caused by a rising oil price, only partially neutralizes any increase in sales of FX by exporters.
President Putin is expected to comment at 13:00 today at Russia's Energy Week forum. Weekly CPI data (16:00) and US weekly EIA oil inventories (17:30) are also due.
Data collected by the Institute of International of Finance shows that in the week after the Fed's September 20 decision, the largest weekly EM outflows were recorded since the US election. Overall in September, net portfolio EM inflows were still positive.
> Bottom line. USD/RUB volumes are low. We expect the pair to hold in a 57.50-58.00 range.