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

• USD/TRY remains cautious in the mid-13.00s so far.
• Investors and the lira remain vigilant on the CBRT event.
• The decision on interest rates by the CBRT remains a close call.

The Turkish lira extends the range bound theme and motivates 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, always in the mid-13.00s and 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 it seems to prevail, albeit by a scarce margin, the call for an “on hold” decision. In such scenario, it will be the first meeting the CBRT would refrain from acting on rates following the 500 bps rate cuts since the September meeting.

Still around 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 keeps the multi-session consolidative theme well in place, always 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).