USD/TRY challenges four-month lows near 5.52
- USD/TRY drops further, tests multi-week lows near 5.52.
- Turkey CPI rose less than estimated during July.
- US-Turkey talks over Syria remains in centre stage.
The Turkish Lira has resumed its upside on Tuesday and is now dragging USD/TRY to the vicinity of four-month lows near the 5.52 handle.
USD/TRY focused on geopolitics
Spot has entered the fourth consecutive month with gains in August, leaving behind (just for the moment) any speculations of a currency crisis after the Turkish central bank (CBRT) cut the One-Week Repo Rate more than expected at the July meeting.
Collaborating with this view, the likeliness of US sanctions following Turkey’s purchase of the Russian missile defence system has practically evaporated, lending extra legs to the Lira and shifting the focus of attention to the ongoing talks between both parties regarding a safe zone in northern Syria.
Latest inflation figures in the country saw consumer prices rising less than forecasted during last month, although it is also true that the CPI did tick higher inter-month and from a year earlier. The central bank, however, sees inflation declining gradually in the next months.
In the docket, the only release of note this week will be Friday’s Current Account figures for the month of June.
What to look for around TRY
The Lira continues to digest very well the large interest rate cut by the CBRT last week. Newly appointed Governor M.Uysal appears to have inaugurated an Erdogan-sponsored easing cycle. Whether this move was untimely (as regarded before the rate cut) it remains to be seen. In the meantime, TRY remains supported by the ongoing ‘hunt for yield’, as domestic rates still look attractive in spite of the recent cut. TRY, however, is expected to closely follow developments from the trade front, particularly after the recent implementation of new US tariffs, and geopolitics in the Middle East, involving Russia, Syria, Turkey, Iran and the US. On the more macro view, the country needs to implement the much-needed structural reforms (announced in April) to bring in more stability to the currency and sustain a serious recovery in both economic activity and credibility.
USD/TRY key levels
At the moment the pair is losing 0.65% at 5.5272 and faces the next support at 5.5151 (monthly low Jul.31) followed by 5.2918 (monthly low Mar.29) and then 5.1594 (2019 low Jan.31). On the flip side, a surpass of 5.6446 (21-day SMA) would expose 5.7727 (high Jul.25) and finally 5.7849 (monthly high Jul.8).