The Lira’s Resilience to Rising Oil Prices Is Baffling Analysts

© Bloomberg. An assortment of Turkish Lira banknotes stand in this arranged photograph in London, U.K., on Wednesday, Aug. 15, 2018. Turkey took its boldest steps yet to try to ward off a financial crisis by making it harder for traders to bet against the battered lira and easing rules on restructuring troubled loans that have already topped $20 billion.

(Bloomberg) — Analysts are having a hard time explaining the lira’s resilience to rising oil prices.

The worst-performing currency in emerging markets this month fell just 0.2 percent as of 3:02 p.m. in London even as nears $75 a barrel. The U.S. decision to end oil waivers granted to Iran’s customers is a setback for Turkey, a neighbor that’s more reliant on Iranian oil than any other country.

“There have been numerous questions marks on the coordinated action of the authorities to support the lira and one can not rule out any form of intervention,” Guillaume Tresca, a strategist at Credit Agricole (PA:) SA in Montrouge, France. “The problem is the Turkish lira does not seem to be a liquid market and it is not reacting normally anymore.”

With Turkish markets closed for a national holiday, low liquidity might be one reason for the lira’s muted response. Investors have also become hesitant to short the currency after some caught out by a surge in local swap rates last month. Instead, they cut their exposure to local bonds for three straight week through April 12, according to central bank data.

Here’s what money managers and strategists are saying about the lira’s inertia:

Credit Agricole’s Tresca:

  • “Since the rise of the overnight FX forward rate foreigners are thinking twice before shorting the lira”

Cristian Maggio, the London-based head of emerging-market strategy at TD Securities

  • “It could be a delayed response as a result of thin liquidity and, perhaps (this is me speculating) state-owned banks are keeping a lid over . So it may take more pressure for the lira to weaken further”
  • “The Iran waiver was a known thing. The market had more than enough time to price in this event. That said, I think the lira will suffer from this event at the margin of an already deprecatory trajectory”

Piotr Matys, a London-based analyst at Rabobank

  • “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, when the relationship is already tense due to Turkey’s insistence on buying Russian missile-defense system”
  • An increase in political tension would “expose the 6.00/USD level” as the next potential target. October’s top of 6.2282 would be next

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