USD/TRY likely to rise sharply over coming quarters, says Commerzbank

The USD/TRY currency pair is expected to rise sharply over the coming quarters amid Turkey’s long-term imbalances still proactively alive, according to the latest research report from Commerzbank.

Once the US-Iran conflict appeared to de-escalate and the oil price gave up its gains, the lira staged a nice rebound from its early January lows. Turkey's balance of payment fundamentals, however, deteriorated in the latest data release, as did inflation fundamentals earlier in the month.

On a seasonally-adjusted basis, Turkey's exports were down 0.6 percent m/m in November, while imports rose by 2.6 percent m/m; the trade deficit widened noticeably and the current-account recorded $1.1 billion deficit vs. $0.3 billion deficit in October on a seasonally-adjusted basis, the report added.

In November, portfolio flow turned positive, which supported the balance of payments and the lira. But of course, this source of financing is volatile and unreliable.

"In short, the CPI and balance of payment data give us a sneak preview of how key variables could shape up as the economy recovers from the 2018 lira crisis: during the 2019 economic recession, the current-account and inflation had managed to improve; this was misconstrued to be long-term 're-balancing' by policymakers," Commerzbank further commented.