Analysts at MUFG Bank, point out the South African rand (ZAR) has become more closely linked to the performance of the Turkish lira (TRY) providing in a proxy. They maintain a long USD/ZAR trade idea with a target at 18.400.
Key Quotes:
“The ZAR has become more tightly linked to negative developments in Turkey, and we prefer to use it as a proxy for short TRY exposure. We expect the TRY to remain under downward pressure and view relative stability over the past week as unsustainable. The stealth monetary tightening by restricting access to funding is unlikely to be sufficient to stabilize the TRY. The main risk to the trade idea is that the ZAR has already moved along way since late last month. It increases the risk of a short-term squeeze of long positions.”
“One potential downside trigger would be if the CBoT acted decisively and raised rates significantly to offer more support for the TRY. An extension of broad-based USD weakness would also work against the trade idea.”