USD/TRY regains some traction around 8.3000

The Turkish lira reverses part of the recent strength and now lifts USD/TRY back to the 8.3000 region at the end of the week.

USD/TRY cautious post-CBRT decision

After two consecutive daily drops, USD/TRY reclaims some composure and retests the 8.3000 region, as investors continue to digest the latest CBRT meeting on Friday.

Thursday’s positive session for the lira came after the Turkish central bank (CBRT) left unchanged the One-Week Repo rate at 19.00%, falling in line with markets’ forecasts.

In its statement, the central bank reinforced its pledge to use all available tools to bring down the rampant inflation, which showed the CPI rising more than 17% on a year to April. However, the CBRT left the door open to potential interest rate cuts after once again reiterating that rates will be set above inflation (unchanged from the April statement).

Supporting the latter, it is worth recalling that the central bank sees inflation peaking in April and expects it to grind lower to around 12.2% by year-end.

In the calendar, the US Nonfarm Payrolls (978K exp.) will take centre stage later in the NA session seconded by the Unemployment Rate (5.8% exp.).

What to look for around TRY

The near-term outlook for the lira remains fragile to say the least. Despite keeping rates unchanged at its meeting, Governor S.Kavcioglu is gradually expected to reverse (wipe out) the shift to a market friendly approach of the monetary policy that was successfully implemented by former Governor N.Agbal back in November 2020. Against this, it will surprise nobody to see the CBRT returning to the unorthodox/looser monetary stance in the next months, opening the door to further lira depreciation, FX reserves exodus and rising bets on a Balance of Payment crisis. Against this backdrop, it will surprise nobody to see spot trading around 10.00 in the medium-to-longer run.

Eminent issues on the back boiler: 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. Capital controls? The IMF could step in to bring in financial assistance.

USD/TRY key levels

So far, the pair is advancing 0.29% at 8.2951 and faces the next up barrier at 8.3710 (weekly high May 4) followed by 8.4840 (2021 high Apr.26) and then 8.5777 (all-time high Nov.6 2020). On the other hand, a drop below 8.1316 (weekly low Apr.29) would aim for 7.9937 (weekly low Apr.15) and then 7.9434 (50-day SMA).