USD/TRY set to surge higher towards 9.10 by end-Q3 – Credit Suisse

The importance of the Turkish central bank’s policy meeting on Thursday, August 12 has been raised by president Erdogan’s public comments about interest rates and inflation last week. In the view of economists at Credit Suisse, USD/TRY short-term downside is likely limited to the 8.45 area and the pair is likely to rise to 9.10 by the end of Q3 2021.

A drop back to the 8.30 level in the short run seems unlikely

“All of the 20 economists who are participating in Bloomberg’s survey of views on the central bank’s decisions are forecasting that the meeting will not lead to a change in the policy rate.” 

“We could imagine USDTRY drops to the 8.45-8.50 area within a few days. Conversely, in case the central bank does give markets a reason to expect a rate cut in September, or if it actually cuts the policy rate tomorrow, we would expect USD/TRY to test its all-time high of 8.80 from late June in the very short run.”

“We maintain the view that USD/TRY is likely to rise to 9.10 by the end of Q3. But due to (heavy) carry costs and the sizable move in recent days we think that it makes sense to maintain a reactive trading approach rather than establish a long USD/TRY position at current levels.” 

“A drop back to 8.30 (although not our base case) would most likely once again represent a good entry level for long USD/TRY positions.”