USD/TRY set for another steep climb – TDS

Turkey's announcement of a bold new scheme to protect TRY deposits from FX risks seems to have turned the tide. However, economists at TD Securities believe USD/TRY has reached the bottom and expect the pair to enjoy considerable gains.

The nightmare after Christmas

“The lira has cumulatively appreciated ~57% vs USD from a record low at 18.3633 on 20 Dec. But have lira bears really capitulated? Momentum seems to be fading already.”

“We still lack evidence that investors (especially locals) have turned en masse to converting hard currency into lira. Rather, the latest information on reserve usage provides strong evidence that the CBRT has used the big guns, through both direct intervention and its swap program.”

“In the past month, the CBRT's gross reserves have dropped the most since March 2020. While this is immediately visible to all, the sizeable increase of the CBRT's swap program to new record highs, and its implications, are not.”

“Turkey’s macro-financial stability looks unsustainable. We think USD/TRY may soon be set for another steep climb.”