Russia FX Beat - September 25, 2017

> Today's focus. German election outcome, Russia tax day.
> Global trigger: Merkel limps to victory. To start the week, markets will be absorbing the result of the elections in Germany. Chancellor Merkel has won a fourth term, albeit with a margin of victory that is far from convincing. The 33% share of the vote that her CDU-CSU party received represents its worst performance in 70 years and likely means a three-way coalition with the Free Democrat and Green parties.
The far-right AfD party placed third, claiming seats for the first time and causing a shock in Germany. Although the election result is unlikely to impact financial markets heavily, the AfD's gains will influence the approach to re-energizing and reforming the eurozone taken by Macron and Merkel in coming years.
Outside of Germany, the focus this week will be on several central bank speakers. Of greatest potential relevance is a speech by Fed Chair Yellen tomorrow on inflation, uncertainty and monetary policy.
Prior to this, Fed officials Dudley (15:30 Moscow time) and Evans (19:40) speak today. In the eurozone, Germany releases its IFO survey at 11:00, while ECB President Draghi speaks at 16:00. Elsewhere, Japan's PM Abe is expected to call an election for October 22.
> Bottom line. EUR/USD is range-bound so far this morning, but we see a risk that it slips below 1.19.
> Regional trigger: Tax day. Late on Friday, Fitch announced that it had kept Russia's sovereign rating at BBB- but had raised its outlook to positive. The agency believes Russia's international reserves might reach $500 bln by 2019 and that its debt burden is the lowest of all BBB-rated countries. Geopolitical tensions and US sanctions are key sources of risk in both directions.
Fitch's arguments, while similar to those made by S&P (BB-) a week ago, are more optimistic. If Fitch upgrades Russia, perhaps as soon as in 1H18, its rating will be two notches higher than that of S&P.
Today is the deadline for major September tax payments to be paid by Russian companies. Some R700 bln is due for payment and this may add some support for the ruble, even if most of the necessary conversions have already taken place.
> Bottom line. USD/RUB may test trend support in the 57.35-57.40 area.