By Gina Lee
Investing.com – The dollar was up on Monday morning in Asia, but the Turkish lira tumbled towards a record low against the greenback after President Recep Tayyip Erdoğan replaced hawkish central bank governor Naci Agbal over the weekend.
The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged up 0.16% to 92.073 by 10:26 PM ET (2:26 AM GMT).
The USD/JPY pair inched down 0.03% to 108.84.
The AUD/USD pair was down 0.30% to 0.7719 and the NZD/USD pair edged down 0.17% to 0.7151.
The USD/CNY pair inched up 0.06% to 6.5108.
The GBP/USD pair was down 0.26% to 1.3832.
Erdogan fired Agbal in a surprise move that came two days after a sharp rate hike aimed at heading off nearly 16% inflation and support the lira. With Sahap Kavcioglu now at the helm, the central bank will likely reverse the hawkish steps taken to battle inflation so far, which could lead to prolonged market volatility.
The Turkish lira stood at 8.10 per dollar in early Asia trade, down 11% from its close on Friday. The lira fell by as much as 14.9% to 8.4850 at one point, close to a record low of 8.5800. Liquidity was thin during early trading in Asia, but some investors were bracing for bigger moves as European and U.S. markets open later in the day.
“After regaining investor confidence with a series of aggressive rate hikes, Turkey has snatched defeat from the jaws of victory,” Brown, Brothers, and Harriman analysts said in a note.
Other inventors worried that the events in Turkey could cause disruptions in other financial markets giving the safe-haven dollar a boost.
“Other emerging market countries are not in the same position as Turkey, but there still could be some contagion … there are concerns that people will start taking profits in other markets. This looks like a time to re-think your investment strategy because the rotation into higher-yielding emerging market currencies will be put on hold,” Mizuho Securities chief currency strategist Masafumi Yamamoto told Reuters.
The yen climbed against the euro, the AUD, and the NZD, with the safe-haven asset boosted by expectations that Japanese investors will cut their losses on the lira, which they had bought due to its high rates, and unwind other popular cross yen trades.
Further declines in the AUD and the NZD are likely to be limited because both currencies will still benefit from rising commodity prices and an acceleration in global trade, Mizuho’s Yamamoto said.