Lira Falls to 2-Month Low as Zuma Shakeup Roils Emerging Assets
This article by Tugce Ozsoy for Bloomberg may be of interest to subscribers. Here is a section:
Global risk appetite for riskier markets has suffered a blow since South African President Jacob Zuma dismissed Finance Minister Nhlanhla Nene and replaced him with David van Rooyen, a lawmaker who is little known to investors. The developments are weighing on emerging-market countries, including Turkey, and sapping investment interest that has been pounded amid heightened tensions in the Middle East and expectations for a Federal Reserve interest rate increase next week.
“When something negative happens in one EM currency, especially such a popular one as the rand, it has an impact on other currencies,” Piotr Matys, an emerging-markets currency strategist at Rabobank Group in London, said by e-mail on Friday. “While a strong reassurance from the Fed that it will raise interest rates very gradually should keep USD/TRY below the all-time high at 3.0752, all bets will be off if USD/ZAR extends its gains well above the 16.00 threshold.” The South African currency was trading 2 percent lower on Friday at 15.7750 per dollar.
Open warfare in two bordering countries, a dispute with Iraq about how many troops it should have on the ground, fears the Kurds, whom Ankara considers terrorists, might be the ones to forge a new country out of the current crisis and sharply deteriorating relations with Russia all represent headwinds for Turkey.
The reckless firing of South Africa’s finance minister is far from good news because Turkey has so often been lumped together with South Africa in the Fragile Five. The term was coined two years ago by an analyst at Morgan Stanley. Here is a link to a piece I wrote in early 2014.
The US Dollar remains in a consistent uptrend against the Lira and a sustained move below TRY2.75 would be required to begin to question that dominance.
The iShares MSCI Turkey ETF has been trending lower for nearly two years and is now testing the region of the September lows. While somewhat oversold in the short term, a sustained move above the trend mean would be required to begin to question medium-term supply dominance.