Russia FX Beat - September 29, 2017

> Today's focus. Inflation data from the US and EU.
> Global trigger: Watch out for US PCE data. After three solid days of gains, the dollar sold off yesterday as investors took stock before the quarter end. UST yields also softened slightly as markets reflected on the tax plan recently unveiled by President Trump, which was rather lacking in detail.
Today is a busy day for data. Very important will be August US PCE deflator data (15:30 Moscow time). The Fed aims to achieve 2% inflation not based on CPI but on the PCE core deflator. In July, the latter came in at 1.4% y-o-y, while the Fed's new forecasts released last week project it at 1.5% by the end of 2017. The Bloomberg consensus is for an unchanged 1.4% reading today courtesy of a 0.2% m-o-m gain. Needless to say, the dollar could react quite sharply should the data surprise in either direction.
The eurozone also sees September CPI data (12:00). German CPI data yesterday surprised slightly to the downside, raising the possibility that the eurozone number will do the same today. The euro might well edge lower if CPI in the region remains stuck at 1.5% y-o-y.
> Bottom line. EUR/USD to hold in a range ahead of today's data.
> Regional trigger: Pause from EM FX selloff. This week the dollar has gained against all the currencies that we follow. The hardest-hit have been the Mexican peso and Polish zloty, two of the top three performers so far this year, both of which have fallen around 2.5% this week. The correction is suggestive of a general reduction in risk appetite.
Within this context, the ruble's performance is unremarkable - it fell around 1% over the same period. However, this has been a week of two halves for the ruble. In the first part, the ruble performed poorly in view of the surge in Brent toward $60/bbl. Yet, as the Brent price has slipped below $58/bbl, the ruble has held up quite well.
At quarter ends, a temporary dollar liquidity deficit sometimes occurs in global markets. It seems this happened in Japan today, causing implied O/N JPY rates to dip 4 pp. There might be some spillover in the Russian money market later today, but the effect should be rather mild. FX liquidity currently seems to be more or less balanced following the settlement of the Finance Ministry's Eurobond swap deal. Implied O/N ruble rates have risen from about 6% Tuesday morning to above 7.5%.
> Bottom line. USD/RUB likely to hover in range of 58.00-58.20.