USD/TRY remains bid above 18.00, keeps targeting 2022 highs

The persistent bid bias around the greenback pushes USD/TRY back to the 18.22 region on Tuesday.

USD/TRY up on USD-buying, looks to CBRT

USD/TRY extends the auspicious start of the week and once again trades at shouting distance from the all-time highs around 18.25 on Tuesday. The upbeat tone in the greenback continues to put the risk complex and the EM FX space under persistent pressure, always sustained by firm prospects of Fed’s tightening.

The lira, on the other hand, depreciated further after inflation figures in Türkiye ran at the hottest pace since September 1998 in August, at just above 80.0% YoY.

However, positive news for the lira came after the Türkiye’s Medium Term Program (MTP) now expects consumer prices to decline in the next years until levels below the 10.0% mark by 2025.

The MTP also expects the economy to expand 5% next year and 5.5% in 2024 and 2025. It is worth noting that Türkiye’s economy expanded the most in the G-20 in Q2, only after Saudi Arabia.

Türkiye’s finmin N.Nebati commented on the program and highlighted that policies aim at ensuring high-value added production, a continuing improvement in the current account, productivity and higher exports.

Now that inflation figures are out, investors' attention is expected to gyrate to the next monetary policy meeting by the Turkish central bank (CBRT).

What to look for around TRY

USD/TRY flirted with all-time highs around 18.25 last Friday, keeping the uptrend well in place and entering the ninth consecutive month in the positive territory.

In the meantime, price action around the Turkish lira is expected to keep gyrating around the performance of energy and commodity prices - which are directly correlated to developments from the war in Ukraine - the broad risk appetite trends and the Fed’s rate path in the next months.

Extra risks facing the Turkish currency also come from the domestic backyard, as inflation gives no signs of abating (despite rising less than forecast in July), real interest rates remain entrenched well in negative territory and the political pressure to keep the CBRT biased towards low interest rates remains omnipresent.

In addition, there seems to be no other immediate option to attract foreign currency other than via tourism revenue, in a context where official figures for the country’s FX reserves remain surrounded by increasing skepticism.

Eminent issues on the back boiler: FX intervention by the CBRT. Progress of the government’s 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. Structural reforms. Presidential/Parliamentary elections in June 23.

USD/TRY key levels

So far, the pair is gaining 0.09% at 18.2235 and faces the immediate target at 18.2574 (2022 high September 2) seconded by 18.2582 (all-time high December 20) and then 19.00 (round level). On the other hand, a breach of 17.7586 (monthly low August 9) would pave the way for 17.6435 (55-day SMA) and finally 17.1903 (weekly low July 15).