Russia FX Beat - September 5, 2017

> Today's focus. Russian CPI to fall well below 4% target.
> Global trigger: Hints from the Fed? Global currency markets were relatively quiet yesterday due to the US holiday. However, there was little surprise to see that the Swiss franc (+0.7%) and yen (+0.5%) were the top performers, given the renewed concern over the turmoil on the Korean Peninsula. Gold, too, traded as much as 1% stronger to reach its highest level this year, before settling with a gain of 0.7% on the day. The US ambassador to the UN said that North Korea was "begging for war," yet it is far from clear whether the Security Council will agree on a new set of sanctions.
Aside from this uncertainty, markets today will look to a speech by Fed voter Lael Brainard on the economic and monetary policy outlook (14:30 Moscow time). Should Brainard talk up the prospect of a near-term US hike, the dollar would likely gain.
> Bottom line. EUR/USD may well stay range-bound into Thursday's ECB decision. We have a slight preference for it to edge lower to test support in the 1.1870-1.1875 area.
> Regional trigger: All eyes on CPI. Either today or tomorrow August CPI data will be released. After a run of negative weekly inflation figures, the consensus looks for the y-o-y rate to drop 0.2% m-o-m to 3.7% y-o-y, from 3.9%. We see downside risks to this forecast, with a drop of as much as 0.4% possible, which would see the y-o-y rate reach 3.5%. Should such a scenario unfold, a 50 bp cut from the CBR on September 15 would become much more likely.
Today, the Finance Ministry will announce at 12:00 how much FX it will purchase between September 7 and October 5. We expect purchases of around R90 bln. While this is nearly double the amount bought in August, it is still too small a daily flow (i.e. $73 mln) to trouble a local FX market that turns over around $4 bln per day. Just over $6 bln has been purchased since the interventions began in February.
Ruble turnover was unsurprisingly light yesterday at just $2 bln on the Moscow Exchange. USD/RUB seems finely balanced at the moment. In fact, data from the CFTC shows speculative positioning to be almost flat. It is unclear to us whether international investors will want to significantly increase exposure to the ruble in the coming weeks beyond what they are already exposed to.
> Bottom line. Should CPI fall sharply, additional inflows into OFZs could take USD/RUB back below 57.60.