Experts: Dollar Could Sink vs. Shekel After Positive Economic News

With the dollar down 3.5 percent against the shekel since the beginning of 2017 — and in light of the strong economic growth reported in the fourth quarter, including a sharp increase in exports — investors are speculating that the Bank of Israel may relax its support of the dollar. Speaking to the Bizportal news site, one investor said that “the Bank has two or three days this week to show its cards. If it does not intervene with a mass buying of dollars, we could see a major fall in the shekel/dollar rate.”

The dollar opens at a rate of NIS 3.7014/dollar on Monday, when foreign currency trading resumes. The greenback lost 0.39 percent of its value last Thursday alone, after government numbers showed that the economy had grown a surprisingly strong 6.2 percent in the last quarter of 2016. Even more important from the viewpoint of the exchange rate, exports climbed 11.2 percent, following on growth of 7.5 percent in the previous quarter.

As the chief objective of Bank of Israel intervention in recent years has been to maintain a relatively high shekel/dollar rate in order to ensure that Israeli goods and services were competitive on the international market, the strong surge in the economic numbers has led to speculation that the Bank of Israel will reset its “floor,” and allow the shekel to strengthen — perhaps significantly — before it intervenes to support the shekel by buying up excess dollars.

The true “value” of the shekel, said investors, can be seen in the Israeli currency’s strength against other currencies, which the Bank of Israel does not support. While the dollar has lost 5 percent of its value against the shekel in the past 12 months, the euro has been down 9 percent, while the British pound has sunk 17 percent. The euro closed at NIS 3.9267/euro on Thursday, and its fall below the NIS 4/euro level was considered a major achievement for the shekel by investors.

The Bank of Israel already has $100 billion in reserves, much of it acquired over the past several years as a result of buying up dollars to keep the shekel’s rate artificially high. Given the strong performance of the economy and of exports, even during a period when the shekel is relatively low against the dollar in historic terms, investors are speculating that the Bank could set a new “low” for the shekel, above which it may not intervene to buy dollars.

Speaking to Bizportal, one investor said that “for a long time — over a year and a half — the NIS 3.73/3.74 level was considered the one at which the Bank would intervene in order to support the exchange rate. Now that that level has been broken, the trading on Monday and Tuesday will be critical in order to determine whether or not there will be a dollar recovery in the near term. The foreign currency market realizes that there is a direct connection between export levels and the Bank’s intervention in the foreign currency market.”