Russia FX/Rates Snapshot - September 12, 2019

We believe the ruble could reach 65 against the dollar today on trade optimism, but could rebound back to 65.3 later and could even fall more significantly against the euro if the ECB isn't as dovish as the market wants. We expect it to lower the deposit rate by 10 bps to -0.5%, hint at a further cut and introduce tiered deposit rates (in order to mitigate the effect of negative deposit rates on banks' profitability, less than 100% of reserves held at the ECB in deposits will be subject to a negative deposit rate). However, lots of ECB officials have recently expressed oppositions to resuming QE, given that many sovereign bond yields in the eurozone tumbled in August and are deeply negative. Thus, we expect the ECB not to launch QE immediately but rather to take more time to discuss the parameters of a new program, which could be unveiled toward year-end. Meanwhile, many market participants expect it to restart asset purchases already this month to the tune of EUR30 bln per month. So if the ECB doesn't immediately deliver that, EUR/USD could strongly advance to 1.115.