Russia FX Beat - September 11, 2017

> Today's focus. Hurricane Irma and possible UN vote.
> Global trigger: DXY on the cusp of greater decline. It is a quiet scheduled start to the week, which may allow investors to take stock of the sharp dollar losses observed last week. The dollar fell against all major currencies, with the DXY suffering its worst weekly performance (-1.5%) since June. The DXY Index is currently testing major support at 91.35. A break of this could trigger further dollar depreciation.
In the absence of any data today, attention focuses on the damage caused by Hurricane Irma. Last week, Fed Governor Dudley said events such as Irma could impact the short-term timing of a Fed rate cut, but that longer-term, natural disasters tend to prove positive for GDP. Irma has been estimated to cause as much as $200 bln of damage. We will also watch whether a UN Security Council vote today occurs, for which North Korea promises the US the "greatest pain" in response.
Later this week, the data focus will turn to US CPI data on Thursday and retail sales figures on Friday. The Fed meets next week and is expected to announce the start of tapering its $4 trln balance sheet.
> Bottom line. EUR/USD likely to hold close to the 1.20 level.
> Regional trigger: Big Friday. The ruble lost its positive momentum on Friday, as local demand for dollars picked up and oil prices posted a decline for the first time all week.
All eyes in Russia will be on the two major events scheduled for Friday. First, the CBR announces its latest rate decision. After excellent August CPI and inflation expectations reports, we expect the key rate to be cut 50 bps to 8.50%. Yet we would not be surprised if a relatively hawkish message accompanied the decision, resulting in implied market rates moving higher with respect to policy easing over subsequent months.
Also on Friday, S&P announces its semiannual review of Russia's sovereign rating. Russia, which is rated BB+ with a positive outlook, lost its investment-grade status in January 2015. Last month, S&P said that new US sanctions had no immediate rating implications. Based on S&P's criteria, we see a non-negligible 15% chance that Russia is returned to investment-grade status, i.e. BBB. While positive for sentiment, we do not think investors in local fixed income assets are very sensitive to this.
> Bottom line. USD/RUB may edge back lower to 57 today, if the Brent price recovers toward 54.50/bbl.