Economists at Credit Suisse stick to the view that USD/TRY will move to levels above its all-time high (8.58) in 2Q 2021. At the same time, they think the price action in USD/TRY will remain directionless in the short run amid possible FX market intervention by the central bank.
The risk to USD/TRY still seems to us skewed towards the upside
“A move in USD/TRY to levels above the all-time high of 8.58 is highly likely to materialize during the course of the current quarter. This view is based on expectations of an increase in depreciation pressure on the lira from the financial account side, via cross-border outflows from TRY-assets and possible dollar-buying by locals as markets question the monetary policy outlook, and at a time when the current account deficit remains relatively large.
“The central bank seems set to smooth USD/TRY upside via intervention in the FX market. Erdogan’s green light for such intervention and the fact that state-owned banks’ foreign exchange position is substantially higher now than it was in early August suggest that dollar demand from the financial account of the balance of payments will be met with central-bank-orchestrated FX sales for now. This should keep TRY weakness in check, but also leave USD/TRY subject to intraday volatility.
“In the case that USD/TRY does manages to break above all-time high of 8.58 in the short run we expect resistance at rounded levels, such as 8.70 and 8.80.”
“We think that a sustained break in USD/TRY below 8.00 is not on the cards, even if the central bank stays on hold at its meeting next week (6 May).”
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