How to Use Currencies to Trade Turkey's Hot Growth

Istanbul's Arasta Bazaar
Maremagnum | Photographer's Choice | Getty Images
Istanbul's Arasta Bazaar

Turkey is growing fast, as is Turkish inflation - and that's all good for the Turkish lira, these traders say.

Robust inflation is the driver for the Turkish lira, says Andrew Busch, global currency and public policy strategist for BMO Capital. He expects the government to respond with higher interest rates, and of course higher rates tend to generate currency strength.

Turkey has a 4.3% CPI, Busch told CNBC's Melissa Lee, and he expects it to rise. Also, Turkey's latest current account deficit was higher than expected, and there are elections looming next month.

Busch expects a pullback in the currency ahead of the elections, but he thinks the central bank will raise interest rates once the votes are counted, and the lira will start rising again.

He suggests selling the dollar against the Turkish lira at 1.5975, with a stop loss of 1.6075 and a target of 1.5475.

Rebecca Patterson, chief markets strategist for J.P. Morgan Asset Management, Institutional, is more cautious on the Turkish lira - but only because of her concerns about investors' appetite for riskier currencies.

"I like buying the Turkish lira on dips, but I would probably wait until I thought broad risk appetite was bottoming out and turning higher," she says. "Be careful on your timing, but on a dip I think this is an interesting currency to own."

You can watch the whole discussion in the clip, starting at 12:55.

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