Israel Shekel is Safe Currency in Emerging Markets to Societe General

The Israeli shekel is a haven among emerging market currencies, and any Syria-related weakness is a buying opportunity, Societe General said.

Better-than-forecast economic growth in the second quarter, and expectations that Israel’s interest-rate differential with major economies won’t narrow in coming months, are fueling shekel gains. Israel’s economy is set to expand 3.5 percent in 2014, faster than the 3 percent forecast for Russia and the 2.5 percent estimate for Poland, according to economist estimates compiled by Bloomberg.

“The shekel displays some interesting defensive characteristics, and is therefore one of the few safe-haven emerging market currencies in this challenging global environment,” Benoit Anne, head of emerging-market strategy at Societe General, said in a note to investors Aug. 30. “Syria may cause a knee-jerk reaction to the shekel but I would quickly call this a buying opportunity,” he said in separate comments.

The shekel rose 0.1 percent to 3.6171 per dollar, at 5:29 p.m. in Tel Aviv, trimming an earlier advance of 0.8 percent, after the central bank bought “more than $100 million.” The currency has appreciated 1.1 percent from a seven-week low on Aug. 27. The shekel’s 14-day relative strength index climbed above 70 on Aug. 27, a threshold that suggests to some traders that a reversal is imminent, data compiled by Bloomberg show. It was at 57 Monday.

President Obama said Aug. 31 he’ll seek congressional approval before ordering a military strike against Syria. Legislators will take up the issue once they return from their recess on Sept. 9. The currency has gained 3.2 percent this year, the best performer among 31 major currencies tracked by Bloomberg.

The economy expanded an annualized 5.1 percent in the second quarter, compared with a revised 2.7 percent in the previous quarter, the Central Bureau of Statistics said Aug. 18.

The Bank of Israel, led by interim Governor Karnit Flug, kept the benchmark lending rate unchanged at 1.25 percent on Aug. 26 for a third month, amid signs a global recovery is strengthening. All 15 analysts surveyed by Bloomberg forecast the rate will be held by policy makers at their next meeting on Sept. 23

We “expect local rates to compress, especially in relation to U.S. rates,” Anne said.