USD/TRY: Turkish lira faces headwinds despite tourism surge

The Turkish lira is still sitting at the lowest level on record even as the tourism industry boomed. The USD/TRY exchange rate was trading at 27 on Wednesday, where it has been stuck at in the past few weeks. Similarly, the GBP/TRY rate was trading at 34.50, which was ~55% above the lowest level this year.

Turkey’s tourism is booming

The Turkish economy is struggling, as foreign reserves and the local currency plunges. However, there are some bright spots in the country’s economy amid the rising challenges.

For example, the weaker lira has made it an attractive country for tourists from countries like Russia, US, and the UK. Data shows that over 10 million tourists have visited the country in the past four months. Therefore, there is a likelihood that the number of tourists will soar to above 45 million this year. 

This trend helped to boost the country’s current account to $674 million in June as tourism inflows soared to $4.2 billion. 

Turkey’s exporters, on the other hand, are benefiting from the weaker lira and rising demand from countries like Russia. The challenge, however, is that most exporters rely on imported raw materials. The most recent data showed that exports dropped by 10% to $20.9 billion while imports fell by 16%. 

Still, the Turkish lira is facing substantial headwinds as the country’s inflation rises. The most recent data showed that the headline inflation jumped to almost 50% in July. It has soared to an eight-month high and analysts believe that the trend will continue as crude oil rises,

The biggest challenge is that the CBRT has not been aggressive enough to hike interest rates. It has boosted rates by 9% to 17.5%, lower than what analysts were expecting. 

The next key catalyst for the USD/TRY will be the upcoming FOMC minutes and US housing data. These minutes will provide more information about the deliberations in the last meeting. 

USD/TRY technical analysis

The daily chart shows that the USD to TRY exchange rate has been in a strong bullish trend in the past few years. It remained above the 25-day and 50-day moving averages. Most recently, the bullish trend has faded after the pair found a strong resistance at 27.30.

The USD/TRY pair has also formed a bullish flag pattern, which is shown in green. Therefore, the path of the least resistance for the pair is bullish, with the next level to watch will be at 28, ~3.80% above the current level.