USD/TRY extends the consolidation near 13.50, all eyes on the CBRT

The Turkish lira is extending its range bound theme and motivating USD/TRY to keep business around the 13.50/60 band so far on Wednesday.

USD/TRY focused on the CBRT

Price action around USD/TRY remains muted for yet another session midweek as it stays in the mid-13.00s, against the backdrop of increasing cautiousness ahead of the monetary policy meeting by the Turkish central bank (CBRT) on Thursday.

Consensus ahead of the key CBRT event remains well divided, although the call for an "on hold " decison seems to be prevailing, albeit by a scarce margin. If it were the case the CBRT did keep rates on hold, it would be the first meeting since September – when it cut rates by 500 bps – that it had refrained from acting. 

Still on the CBRT, the central bank announced it clinched a 3-year swap deal with the central bank of the United Arab Emirates (CBUAE) worth TL64B and AED18B.

What to look for around TRY

The pair is sticking to its multi-session consolidative theme, staying within the 13.00-14.00 range at least until the CBRT meeting on Thursday. Higher-than-expected inflation figures released earlier in the year put the lira under extra pressure in combination with some cracks in the confidence among Turks regarding the government’s recently announced plan to promote the de-dollarization of the economy. In the meantime, the reluctance of the CBRT to change the (collision?) course and the omnipresent political pressure to favour lower interest rates in the current context of rampant inflation and (very) negative real interest rates are forecast to keep the domestic currency under intense pressure for the time being.

Key events in Turkey this week: CBRT Meeting (Thursday) – Consumer Confidence (Friday).

Eminent issues on the back boiler: Progress (or lack of it) of the government’s new scheme oriented to support the lira via protected time deposits. Constant 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. Potential assistance from the IMF in case another currency crisis re-emerges. Earlier Presidential/Parliamentary elections?

USD/TRY key levels

So far, the pair is gaining 0.11% at 13.5397 and a drop below 12.7523 (2022 low Jan.3) would pave the way for a test of 12.5482 (55-day SMA) and finally 10.2027 (monthly low Dec.23). On the other hand, the next up barrier lines up at 13.9319 (2022 high Jan.10) followed by 18.2582 (all-time high Dec.20) and then 19.0000 (round level).