Big Banks on Turkish Lira (TRY)

Big Banks on Turkish Lira (TRY)

We’ve presented a situation on the Turkish Lira that is one of the strongest currencies today. What’s more, some banks are looking favourably at the currency and they predict that the upward move could continue.

Credit Suisse lowered its 3-month USD/TRY target to 3.65 from 3.80 previously and recommends investors go long TRY/ZAR. While the referendum underwhelmed markets, many negatives have room to be priced out of the lira after the vote. The bank Expects monetary policy will remain “lira-positive for some time” and that could lead to a rally of the currency. Turkey’s central bank has been keeping liquidity tight and the weighted average cost of bank funding at a more than 5-year high of around 11.5% since April 3. Policy makers next meeting is on April 26.

According to Deutsche Bank, with the event risk of Turkey’s referendum out of the way and President Recep Tayyip Erdogan ruling out early elections, the path could be clear for near-term TRY appreciation.

The lira is on of the two EM currencies that have weakened to the dollar since the beginning of the year. However, DB and Credit Suisse think that this may change soon. source: Bloomberg

Main carry currencies such as BRL and RUB have unattractive valuations or are “very well positioned already,” while those such as the ZAR have arguably more political risk than Turkey. So DB thinks the lira “is potentially the next currency that investors use to take advantage of the relatively carry- friendly environment”.
According to Deutsche Bank, lira offers the highest volatility-adjusted carry in emerging markets, positioning is light, flow dynamics are showing signs of recovery and monetary conditions are relatively tight, he says

 

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