Apr 24 2019

Turkish lira’s resilience mystifies investors - Bloomberg

The resilience of the Turkish lira in the face of higher oil prices is baffling investors, Bloomberg reported.

The lira’s losses were muted after Brent crude neared $75 per barrel on Tuesday even though the country imports nearly all of the oil and gas it consumes. A decision by the United States to end waivers on the import of Iranian crude is also a setback for the country, but the lira remained resilient.

Strategists and economists are saying that trading volume in the lira has become very thin after prices in the overnight swaps market surged a few weeks ago, causing many investors to make a loss. It is also not clear whether the Turkish authorities, including the central bank and state-run banks, are operating to prop up the currency, rendering shorting the lira a risky move, they said.  

“There have been numerous questions marks on the coordinated action of the authorities to support the lira and one cannot rule out any form of intervention,” said Guillaume Tresca, a strategist at Credit Agricole, according to Bloomberg. “The problem is the Turkish lira does not seem to be a liquid market and it is not reacting normally anymore.”

The lira dropped as much as 0.9 percent to 5.87 per dollar on Wednesday, hitting the lowest level in six months, as emerging market currencies underwent a general selloff.

Foreigners are hesitating to trade in lira shorts, said Cristian Maggio, head of emerging-market strategy at TD Securities.

“Since the rise of the overnight FX forward rate foreigners are thinking twice,” he said.

Still, the end of the Iran waiver could create more tensions with the United States, which is already threatening economic sanctions against Turkey should it proceed with the purchase of Russian S-400 defence missiles. U.S. authorities are also investigating a Turkish state-run bank for breaking sanctions on Iran.

“Turkey could very soon find itself in a difficult position at the time when inflation remains stubbornly high close to 20 percent. Iranian oil could be the source of another diplomatic spat between Ankara and Washington,” said Piotr Matys, a London-based analyst at Rabobank, according to Blomberg.

An increase in political tension will “expose the 6.00/USD level” as the next potential target. October’s top of 6.2282 would be next, he said.