- USD/TRY remains on the defensive around 6.9000 on Tuesday.
- The pair tumbles further and records fresh 6-month lows.
- The CBRT interest rate decision comes in on Thursday.
The rally in the Turkish lira remains well and sound for yet another session and drags USD/TRY to fresh multi-month lows in the sub-6.9000 area on Tuesday.
USD/TRY now looks to CBRT
The downtrend in USD/TRY navigates its sixth consecutive session with losses, having posted negative weekly closes in just one out of the last ten weeks.
Since the start of the year, the lira appreciated nearly 7% vs. the greenback, and almost 18% since President Erdogan appointed M.Agbal as President of the Turkish central bank (CBRT) back in early November 2020.
The generalized improved sentiment in the risk complex, higher commodity prices and positive real interest rates are all a favourable cocktail for the Turkish currency, which is expected to face another test later on Thursday when the CBRT meets to decide on interest rate.
However, there is broad consensus among investors that the CBRT will leave the One-Week Repo Rate unchanged at 17.00% despite the pick-up in inflation. Before any other move on rates, it is likely that the CBRT will assess the performance of its past measures, therefore leaving monetary conditions unaltered.
What to look for around TRY
The lira extends the bull trend and manages to extends the decline below the psychological 7.00 support for the first time since August 2020. The (surprising?) stability around the currency comes after the CBRT firmly decided to strongly step in to prevent an imminent crisis of both currency and the Balance of Payments, hiking rates above markets’ expectations and turning to a more orthodox monetary stance back in November 2020. The CBRT kept a steady hand on rates at the January meeting, although it struck quite a hawkish message by emphasizing its commitment to keep a tight monetary policy, always oriented to restore (durable) financial stability and lower inflation figures in the longer run. A big question remains, however, regarding the independence and credibility of the central bank vs. the well-known opinion of President Erdogan when comes to higher interest rates. The lira will closely follow this theme in 2021 along with the Biden’s Administration stance on Turkey, the post-pandemic recovery and occasional bouts of geopolitical effervescence.
Key events in Turkey this week: Consumer Confidence and the CBRT interest rate decision (Thursday).
Eminent issues on the back boiler: Potential US sanctions against Ankara. Government pressure on the CBRT vs. bank’s credibility. Bouts of geopolitical concerns. Much-needed structural reforms. High inflation.
USD/TRY key levels
At the moment the pair is retreating 0.63% at 6.9155 and a drop below 6.8923 (2021 low Feb.16) would expose 6.8796 (monthly low Aug.4 2020) and then 6.6834 (monthly low Jun.3 2020). On the other hand, the next hurdle is located at 7.1989 (21-day SMA) followed by 7.3636 (200-day SMA) and finally 7.5415 (2021 high Jan.18).
Share
