USDTRY: Fitch Ratings' Views On the Turkish Lira and the CBRT

Summary:

Fitch Ratings has published its latest research report on Turkey, and presents its views on the CBRT's interest rate policy and its effect on the USDTRY.

Fitch Ratings has released its Turkey Research and Ratings report, describing its views on the Turkish Lira as well as the one-year-old easing cycle embarked on by the Central Bank of the Republic of Turkey (CBRT) under its current leadership.

According to the report, external financing risks would be the main impact that the coronavirus could impact the country’s credit rating profile. It also noted sizeable downside risks to Turkey’s attempts at stabilizing its balance of payments in the latter half of the year.

Fitch Ratings also reinforced its February review of the country’s credit rating, which stands at BB-/Stable, reflecting the large external financing requirements that have occurred even as the state drew down on its foreign currency reserves.

Fitch Ratings also believes that the one-year-old easing cycle embarked on by the CBRT may be close to being ended. The CBRT had in June’s interest rate decision, held rates at 8.25% in what was considered a market surprise, which caused the Turkish Lira to spike against the USD before retracing fully into the narrow range in which it currently trades. Fitch Ratings does not expect further large-scale FX interventions by the CBRT.

Technical Outlook for USDTRY

There has not been a lack of action from the USDTRY in the last one year, as the country went into an easing cycle that has taken interest rates from double-digit to the single-digit territory. The USDTRY is currently trading in a range formed by the 6.89410 price ceiling and the 6.68817 price floor.

Price is approaching the ceiling of this range, as the Turkish Lira buckles under the US Dollar’s response to the upbeat Non-Farm Payrolls report of yesterday. A break above the 6.89410 price ceiling opens the way for the USDTRY to make a break for the 6.99821 immediate resistance (high of April 20 weekly candle), with 7.08515 serving as the next target in line for a continued advance. 7.26829 remains the all-time high and the level to beat for buyers to initiate further progress on the pair.