Russia FX Beat - September 8, 2017

> Today's focus. Dollar breaking lower. Nabiullina speaks again.
> Global trigger: Draghi fails to halt euro. Yesterday, the ECB left its policy unchanged and indicated that it would announce the "bulk" of its plans for tapering QE in 2018 at its next meeting on October 26.
ECB President Draghi also stated that "recent volatility in the exchange rate represents a source of uncertainty." Despite this reference to the euro, markets were unimpressed given that Draghi did not label the currency as too strong or try to talk it lower. As a result, EUR/USD passed above 1.20 to a high of 1.2092.
EUR/USD was aided by broad-based dollar weakness, and we note that the DXY Index has broken a very important support level at 91.36 (the 50% Fibonacci retracement of the rally from its low in 2014 to its high at the end of 2016). Below this, DXY could target 90. Overnight, New York Fed President Bill Dudley said he is "surprised" by the persistent shortfall of US inflation.
> Bottom line. EUR/USD closed above 1.20 for the first time since January 2015 and could now target the 1.2160 area.
> Regional trigger: 25 or 50 bp cut confirmed. In an interview with Bloomberg yesterday, CBR Governor Nabiullina stated that the regulator is considering 25 and 50 bp cuts to the current 9% key rate at its meeting in exactly a week's time. Nabiullina said she is prepared to tolerate fluctuations around the 4% inflation target, but the CBR must understand whether a departure from the target is due to temporary factors or something more significant. Nabiullina will be on a panel discussion today at the Moscow Financial Forum from 12:00 Moscow time.
Our view is that the CBR will ease by 50 bps to 8.50%. However, although this would be taking the opportunity to cut by a larger amount, we also see a good chance that the bank will warn markets not to expect such cuts to persist. The risk therefore might be for a bounce in local OFZ yields in response.
In separate comments, again to Bloomberg, Finance Minister Anton Siluanov said he does not expect significant changes to the ruble if external conditions remain stable. But he added that the oil price would likely drop sharply if the current OPEC deal is not extended. Siluanov also said Russia's planned Eurobond swap will happen "relatively soon."
> Bottom line. After its recent strong gains, the ruble has failed to take much advantage of this week's sharp dollar loss. Still, the near term risk is for USD/RUB to head below 57.