Russia FX Beat - October 6, 2017

> Today's focus. US jobs data to be hurricane-impacted.
> Global trigger: Distorted US jobs data. The dollar gained across the board yesterday, and, significantly, EUR/USD has retraced below 1.17. Dollar strength is being propelled by a recovery in UST yields. The 10y yield, for example, has recovered to 2.35%, up by around 30 bps from its low point in September. The fact that the DXY and UST 10y yield both reached lows on September 8-9 highlights their current close relationship.
Today attention is very much on the US jobs report for September. That being said, the headline payroll number will be very hard to interpret given the impact of the recent hurricanes in the US. This is reflected in the consensus estimate of 80,000, which is approximately half the amount of jobs created in August. Due to the distortion of this data today, we will watch the average earnings growth figure closely.
There are also many Fed officials due to speak throughout the day. Although markets currently see zero chance of a hike on November 1, pricing for a 25 bp increase on December 13 stands at 75%.
> Bottom line. The dollar is biased to the upside. A weak jobs figure will be written off as hurricane-impacted, while a good number will be seized upon as an indication of a healthy economy. EUR/USD could potentially target 1.1650.
> Regional trigger: CPI hits 3%. CPI in Russia in September was confirmed at 3.0% y-o-y, another record low and a sizable decline from August's 3.3%. Falling food prices were again the major driver. Our economists now expect CPI to end 2017 not far from the current rate, compared with the CBR's forecast of 3.5-3.8% (which we suspect will be revised lower).
The question now is whether such an outlook for 4Q represents a "substantial and persistent" departure from the 4% target. We suspect the CBR will bide its time and cut its key rate by 25 bps on October 27. However, if inflation stays well below target heading toward the year end, a 50 bp cut on December 15 could become likely.
> Bottom line. USD/RUB has had a quiet week amid low volumes. A bounce in oil prices yesterday on Saudi-Russian comments on extending the OPEC+ output cuts was offset by a stronger dollar. USD/RUB is likely to hold in a 57.75-58.00 range today.