The USD/TRY price was the most volatile in March. It rose to a multi-month high of 8.48 after the country’s president fired the central bank governor. In total, the pair rose by more than 10% in March.
Turkish lira in focus
The Turkish lira was in focus as the market reacted to the actions by the Turkish Central Bank. As inflation rose, the central bank decided to do the inevitable. It raised interest rates to 19%, the third rate hike during the then Naci Agbal tenure. Other emerging market countries like Brazil had also hiked their rates.
The Turkish President, Recep Tayyip Erdogan, was unimpressed. Two days after the decision, he fired Naci Agbal and replaced him with a professor and columnist who has advocated for low-interest rates. In his columns, he argued that the high interest rates would lead to inflation, an unorthodox view.
While Turkey has committed to a market-based economy, investors are not convinced. Most of them sold the Turkish lira as they are waiting for the next moves by the new central bank governor. Furthermore, they still have memories of the 2018 Turkish currency crisis.
In April, the USD/TRY market will focus on two main things. First, the currency will react to the latest Turkish consumer price index (CPI) data. The latest data revealed that the headline Turkish CPI increased to more than 15% in February as the price of crude oil rose.
While the price has eased from its year-to-date high, there are signs that it will resume the upward trend in April. Other commodities like copper and iron ore could also continue rising. Therefore, if data shows that inflation remains high, it could put more pressure on the central bank.
Second, the USD/TRY will also react to the first central bank decision under the new governor. If he sounds dovish, there is a probability that the Turkish lira will continue rising.
US bond yields in focus
An external factor that Turkey does not have is the rising US bond yields. In March, the yield of the US ten-year bonds rose to 1.74%, which was the highest level in more than 14%. This happened as investors started to worry about the rising inflation in the United States. Bond yields in other developed countries have also started rising.
The impact of high bond yields in other countries is that it affects the country’s borrowing cost. This is particularly important since the country has high external financing requirements. It had about $189 billion, equivalent to 27% of GDP to external lenders. Also, its budget deficit has widened to more than 3% of GDP.
Also, the USD/TRY will react to the latest actions by the Federal Reserve. In its recent statements, the Fed has committed to an expansionary monetary policy as it continues to support the economy.
USD/TRY technical outlook
The daily chart shows that the USD/TRY jumped sharply in March after the decision to fire the Bank of Turkey governor. It rose to 8.4860, which was slightly below last year’s high of 8.5763. It then declined to 7.1885 and then started to rally.
At the time of writing, it is slightly below the third resistance level of the standard pivot points. It is also above the 25-day and 50-day exponential moving averages (EMA). Therefore, in April, the pair could keep rising as bulls target last year’s high of 8.5763. To do that, it will need to move above this year’s high of 8.4927.