CBRT action boosts TRY, ZAR pulls back after Eskom CEO departure

Summary:
- Hungarian forint weakens ahead of central bank meeting
- South African rand pulls back amid cabinet appointment delay
- Turkish lira trades higher after CBRT raised reserve requirements for FX deposits

With holidays in the United States and the United Kingdom, trading on Monday is thin with little big moves across majors assets. However, there is a group of assets that enjoys some bigger moves today - EM currencies. While most of EM currencies trades lower on the back of the USD strength, some moves diverge from the overall picture.

Turkey

The Turkish lira is the best performing EM currency on the first day of a new trading week. Good condition of TRY can be explained with the latest action of the Central Bank of the Republic of Turkey (CBRT). CBRT decided to increase the reserve requirement ratio for the FX deposits by 200 bps. USDTRY moved lower following the announcement. The Bank reasoned its decision saying that the move should support financial stability. Apart from that, reports surfaced saying that Turkey may refrain from selling longer-dated bonds (5- and 10-year) through July 2019. The pair delivered a move lower following the second piece of news but it was short-lived one.

An upward move on USDTRY was halted after reaching the 6.2450 handle. The pair began to trade within a range later but a short-term upward trendline could be drawn within it. The pair has approached the aforementioned trendline at the end of the previous week and threatens break lower in case TRY falls out of investors’ grace. Source: xStation5

Hungary

The Hungarian forint is the worst performing EM currency today. Following decent gains at the end of the previous week, the currency is back in bears’ favor as investors gear up for tomorrow’s meeting of the Hungarian National Bank. The word on the street is that central bankers may decided to strike a more dovish tone highlighting that the recent data is suggesting that the economy may be overheating. Consensus points at no change in the level of interest rates but some hints on the timing of the next policy action could be delivered.

USDHUF managed to break above the trading range it was moving in since mid-2018. The pair is trading slightly below peaks from 2016 (295~). Note that in case today’s weakening of HUF does not last and the pair resumes downward move, a test of the support zone ranging around 287 handle (upper limit of the recent trading range) may be on the cards. Source: xStation5

South Africa

South Africa rand is one of the worst performing EM currencies against the US dollar at press time. Cyril Ramaphosa has been sworn in as the President of South Africa over the weekend and was expected to announce appointments to the cabinet on Monday. However, new president postponed the announcement later in to the week. Today’s underperformance of ZAR can be ascribed to turmoil surrounding Eskom, the South African state-run utility company. CEO of Eskom decided to step down due to “health reasons” but it is hard not to link the case with extreme debt load of the company. Eskom has $30.5 billion of debt and is said to struggle to meet interest expenses as well as operational costs. Goldman Sachs labelled current issues at Eskom as the biggest threat to the South African economy. Departure of top executive leaves the company with no one in charge and barely any candidates eager to succeed him.

USDZAR has been trading between the upward sloping trendline and the resistance zone 14.52-14.54 since early April. Note that rand may remain under pressure as long as Eskom problems last. Apart from that, the shape of the Ramaphosa’s cabinet will also play a role here, including whether Ramaphosa appoints scandal-afflicted David Mabuza as his deputy. Source: xStation5