Russia FX Beat - September 13, 2017

> Today's focus. Dollar finding support, notably against the ruble.
> Global trigger: Silent period. The Fed has now entered the silent period ahead of its policy decision in a week's time. We expect it to keep the policy rate at 1.25% but announce it will start winding down its balance sheet, perhaps from the start of October.
Yesterday dollar performance was mixed. It gained against most EM currencies but made little ground against G10 currencies. GBP/USD firmed to 1.33, its highest level since September 2016, as UK CPI surprised to the upside. The data comes ahead of tomorrow's BoE rate announcement.
For the time being, the DXY Index and the UST 10y yield have backed away from breaking below key levels. The DXY has bounced off critical support at 91.35, while the 10y yield has rejected a move below 2%.
Today sees US PPI data at 15:30 Moscow time, which might give a steer ahead of tomorrow's more important CPI report for August. In the Eurozone, at 20:00, ECB Chief Economist Peter Praet speaks and might shed more light on last week's meeting.
> Bottom line. EUR/USD to remain in the 1.1950-1.2000 range.
> Regional trigger: Calmer waters. The amount of bank debt outstanding via the CBR's standing facilities has declined to approximately R580 bln, the lowest since late August, when it amounted to R840 bln. This indicates that the situation at some banks, most notably Otkritie Bank, likely improved significantly.
In needing to absorb less liquidity, the CBR set a lower limit of R910 bln at yesterday's deposit auction, versus R1,090 bln previously. If this trend persists, we would expect overnight rates to return toward the key rate within a couple of weeks due to the CBR's more efficient sterilization of excess liquidity.
For now, overnight rates remain low, with a negative spread of 50-60 bps to the key rate. This is largely due to expectations of a 50 bps key rate cut on Friday. Following this, to fulfill reserve averaging requirements, banks will increase correspondent accounts at the CBR from the beginning of next week. These accounts are currently low as banks have been trying to place free liquidity in the money market or via the CBR's deposit auction (yesterday's bid-to-cover ratio soared to 1.6 versus the average of 0.9 over the past month).
> Bottom line. The ruble was on the back foot yesterday, lacking supportive export flow and due to increased bids from some market participants. USD/RUB faces resistance near 57.85. Weekly CPI data is due today at 16:00.