Bloomberg
Istanbul
There’s no end in sight to the Turkish lira’s longest run of losses this century.
The lira fell as low as 3.0695 yesterday, extending a record and heading for the worst performance among 24 emerging-market currencies tracked by Bloomberg. The currency retreated as much as 0.8% to a record 3.0687 per dollar before trading 0.7% lower at 3.05pm
After eight weeks of declines, a streak unmatched since 1999, Goldman Sachs Group and Toronto Dominion Bank predict a further slide against the dollar stretching through next year. They’re not alone. Sellers of the currency outweighed buyers by the most since 2000 on Friday, according to data compiled by Bloomberg.
Turkey’s currency plunge and soaring bond yields, topped only by recession-hit Brazil among emerging markets this year, show the deterioration of confidence in a country grappling with worsening security risks, a second election in six months and an economic slowdown that’s narrowing the central bank’s scope to raise interest rates.
“This won’t be over soon,” Hakan Aksoy, a money manager who helps oversee $244bn at Pioneer Investment Management in London, said on Friday. “We prefer to wait instead of betting on fundamentally and politically weakening countries.”
A gauge used by technical analysts to show the momentum behind a currency’s direction by comparing successive highs and lows shows the most bearish bets in 15 years, according to data compiled by Bloomberg.
That reading from the so-called directional movement indicator, or DMI, may outweigh another tool. The 14-day relative-strength index for the dollar against the lira traded above 70 every day this month, a level that can indicate a security may be poised to reverse trend. With the dollar “in a very strong uptrend like this, RSI can stay overbought for ages,” said Andy Dodd, a London-based technical analyst and trader for Louis Capital Markets UK LLP.
While the lira’s move into “clear undervaluation territory” opens the possibility of a short-term gain, more bearish trends will linger for longer, Goldman Sachs analyst Ahmet Akarli wrote in a report on Friday.
The lira is down 24% against the dollar this year. It will probably slide to 3.15 in three months, 3.40 in six months and reach 3.65 by the end of 2016, Akarli wrote, revising down all three previous estimates. TD Securities predicts a slump to 3.35 to 3.40 by the end of next year.
Citigroup slashed its earnings forecasts for Turkish lenders on a weaker lira. Most banks face pressure on their operating expenses this year because of the currency’s slide, with about 10% of costs linked to the foreign-exchange rate, Citi said.
Turkey’s election, scheduled for November 1, follows the failure of political parties to create a coalition government after an inconclusive vote in June. The country’s three-year truce with the Kurdistan Workers’ Party, or PKK, which has been fighting for autonomy since the 1980s, has disintegrated. Turkey sent about 200 troops in pursuit of Kurdish militants fleeing into Iraq after the killing of 16 Turkish soldiers yesterday, the state-run Anadolu Agency said.
