USD/TRY: The outlook for the lira remains challenging – Credit Suisse

Economists at Credit Suisse stay cautious on the Turkish lira and expect a further gradual rise in USD/TRY in the weeks ahead towards their 9.10 target for Q3. Meanwhile, the Turkish central bank’s policy decision next week (14 July) does not look set to create major currency volatility.

Short-term target of 9.10 for USD/TRY

“We set a new short-term target for USD/TRY of 9.10 – up from the previous target range of 8.70-8.80. Our view is that underlying demand for dollars by various market players will remain sturdy as markets continue to expect a decline in real rates at a time when current account trends are challenging (due to rising commodity prices and weak rebound in tourism).” 

“There seems to be a high threshold for the central bank to decide to raise its policy rate in response to a possible further increase in inflation. We refrain at this point from calling for a rapid increase in USD/TRY in the short-run (e.g. to 9.40) given that international long lira positioning is light and given that the recent increase in inflation is likely to lead the central bank to avoid a rate cut at its coming meeting next week (14 July).” 

“Trading-wise, we would look to buy USD/TRY on a possible dip to the mid-June low of around 7.30.”