A few months ago, Turkey was in trouble. The country had just gotten into a conflict with the United States, a fellow NATO member. The conflict was mostly because of the country’s jailing of an American pastor. This led to a sharp decline in the Turkish Lira. Things were compounded with the increased Turkish debt and the higher oil prices.
In the past few days, however, Turkey has received a boost from the low oil prices. In the past one month alone, the price of crude oil has declined by more than 20%. This has helped Turkey – and other emerging markets. This is because Turkey is a net importer of crude oil. The importers need to exchange less of their currency to dollars to buy the same amount of crude oil. As the price falls, the country is able to buy more crude at lower prices. As a result, its manufacturers are able to improve their margins.
As crude oil price has dropped by more than 20%, Turkish Lira has gained by more than 5% against the USD. Other EM currencies that have gained are Indian Rupee, South African Rand, and Indonesian Rupiah, which have gained by 3%, 3.85%, and 4% respectively.
Another hope for Turkey and other emerging markets is that Trump’s meeting with Xi Jinping will go on well. This is important because businesses do well when there is confidence.
However, the challenge that lies ahead is on the future of crude oil as OPEC+ prepares to meet in December. Already, Saudi Arabia has talked on the need of slashing production. While it pumped the most crude in October, the country has said that it will reduce production by more than 500K barrels. Therefore, with crude oil prices this low, there is a possibility that the OPEC members will agree on boosting production.
The USD/TRY reached the 5.32 level. This is close to the lowest level since August this year. On the daily chart below, the RSI has fallen in the past few days to 42 while the double EMA show that the pair could continue with the declines. If it does, the pair will likely move to test the important support level of 5.00.
