- USD/TRY loses further ground and tests the 7.3200 area.
- The CBRT surprised markets by hiking rates to 19.00%.
- Investors’ focus should now shift to the inflation performance.
The Turkish lira gains extra ground and drags USD/TRY to new 2-day lows in the 7.3200 region on Thursday.
USD/TRY weaker post-CBRT unexpected hike
USD/TRY resumes the weekly downside and leaves behind Wednesday’s advance after the CBRT caught markets off guard by rising the key One-Week Repo Rate by 200 bps to 19.00%, more than initially estimated.
The CBRT therefore keeps intact its commitment to fight inflation via tighter monetary conditions and reinforces its November shift to an orthodox stance.
Moving forward, investors’ attention should gyrate to the performance of domestic consumer prices, as inflation is likely to have peaked in February with the CPI rising at an annualized 15.6%.
So far this week, the lira has appreciated nearly 2.6% vs. the greenback and around 5.5% on a monthly basis.
What to look for around TRY
The lira regained some ground following new yearly peaks just below the 7.8000 level (March 9). The improved sentiment in the dollar has been undermining the lira’s momentum since mid-February, which has been sustained by the CBRT’s commitment to fight high inflation via an orthodox approach from the monetary conditions. Additionally, the central bank appears to have reclaimed some lost credibility/independence since November, and this is no minor issue considering 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 evolution of domestic inflation, the post-pandemic recovery and occasional bouts of geopolitical effervescence.
Eminent issues on the back boiler: Carry trade expected to benefit the lira into H2 2021. Potential US/EU sanctions against Ankara. Government pressure on the CBRT vs. bank’s credibility/independence. Bouts of geopolitical concerns. Much-needed structural reforms. Growth outlook vs. progress of the coronavirus pandemic.
USD/TRY key levels
At the moment the pair is down 1.88% at 7.3528 and a drop below 7.3217 (wekly low Mar.18) would aim for 7.2197 (monthly low Mar.1) and then 6.8923 (2021 low Feb.16). On the flip side, the next hurdle aligns at 7.7772 (2021 high Mar.9) followed by 8.0250 (monthly high Dec.7 2020) and finally 8.0423 (high Nov.24 2020).
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