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Can the dollar exchange rate fall below NIS 3?

We went out to check out what the experts have to say about the low dollar exchange rate and were surprised to hear that some believe it may even go down.

What are the reasons for the phenomenon that keeps sleep away from the manufacturers and what is going to happen?

Here are some possible scenarios

Tags

• dollar

• NIS

• salvo

• Bank Hapoalim

• Bank of Israel

Sonia Gorodisky

Monday, 01 November 2021, 13:22 Updated: 13:56

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The local foreign exchange market has been under a lot of tension in recent days - traders are thirsty to know what the Bank of Israel will do in light of the sharp fall of the dollar against the shekel. Traders' eyes are on Jerusalem, Bank of Israel

The downward trend of the dollar against the shekel (or, if you like, the shekel) has been going on for three years, but it has intensified in recent days following the breaking of records on US stock exchanges. The institutional bodies that manage the pension funds make a profit, their exposure to the dollar increases, and they hedge it by billions of dollars in sales.

The fall in the dollar exchange rate does hurt exporters' profits and the Bank of Israel would have preferred otherwise, but for the citizen of the line, this is good news that is slowing down the wave of price increases a little. Without the appreciation of the shekel, imported products would have risen even sharper - fuel would have risen at a sharper rate, car prices rising worldwide, would have skyrocketed here as well, and the list goes on. And of course, travel abroad has also become cheaper.

Last Friday, the dollar fell in percentage against the shekel, and this morning the market also opened with a sharp drop in the dollar against the shekel, which is currently trading at 3.13 - down 0.8%, and currently, the Bank of Israel does not Intervened in the foreign exchange market. The $ 30 billion acquisition plan announced this year is about to end and will not be renewed.

Apart from the rises in stock markets abroad and the near-term completion of the acquisition program, the macroeconomic situation in Israel looks better than usual. All the time.

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Governor of the Bank of Israel, Prof. Amir Yaron (Photo: Reuters)

And there is another thing, perhaps the most important, that in the eyes of local traders is considered a trigger that led to the influx of foreign entities into the shekel - the expectation that the Bank of Israel will raise interest rates several times in the coming year. This is despite the fact that in the last Governor's announcement on the interest rate, the Bank of Israel signaled that the interest rate will rise only once towards the end of next year.

Interest rate traders "do not buy" it and believe that the governor will be forced to raise the interest rate long before. Why? This is primarily due to the different inflation expectations between what is priced in the capital market and those of the Bank of Israel - while the central bank forecasts inflation of 1.6% 12 months ahead, the capital market is priced at a significantly higher rate of 2.9%.

"It all starts and ends with the interest rate market. The Bank of Israel is standing still and letting the market continue to price interest rate hikes and not top it off. So it got a tsunami of sales. Everyone sells. Institutional, foreign, exporters, and no importer dares to buy "This morning, one of the veteran traders in the foreign exchange market describes the situation in the foreign exchange market.

"They think that issuing an interest rate announcement once a month and a half is enough. Until the next interest rate announcement, the dollar will fall further," he added.

Victor Behar, Director of the Economics Department at Bank Hapoalim (Photo: Inbal Marmari)

"3 shekels to the dollar within a few months"

"The Bank of Israel is about to end the $ 30 billion quota it allocated at the beginning of the year, and the message conveyed to the market is that future purchases will not take place in an orderly manner. The market understands from this that it is going to be in much smaller quantities," Walla explains! Money

.

"On the other hand, the flow of foreign currency to the Israeli market is expected to remain high. There is also a story of front running here - the Bank of Israel is about to leave the market, so I am going to sell my dollars in advance. The message from the Bank of Israel that it is going to slow down the pace of foreign exchange purchases encouraged people to anticipate foreign exchange sales and created a short-term wave of foreign exchange sales that affected the actual exchange rate. "

Behar went on to point out an interesting fact: “During Governor Stanley Fischer’s time, forex purchases began to avoid market failures, but over the years there has been a recognition here that it is not exactly a market failure. We are already more than a decade after the Great Depression and it continues. In the current situation, when it comes to the structured situation of the Israeli market, it is difficult for the Bank of Israel to deal with it, so the Bank of Israel's move (not to renew the dollar purchase plan) makes sense, it is unlikely that the Bank of Israel will suffer huge losses here over the years.

However, Behar notes that "it is easy to blame the Bank of Israel, but it was also unlucky. All the stars got along in one line - during the Corona period Israelis did not travel abroad, the wave of high-tech issuances abroad here more foreign exchange, Wall Street broke records - "It was a pretty rare coincidence that no one thought about it."

"We can see the dollar depreciating to NIS 3 over a period of several months. But an alternative scenario must also be taken into account, especially if we see world stocks fall. A very high correlation has been created between overseas stock prices and the exchange rate here.

The main scenario I see is a continued gradual strengthening of the shekel, but not at the pace of the last week. "

" exchange".

The Wall Street Bull: As it gallops, the dollar falls, due to the exposure of institutional entities to the market (Photo: ShutterStock)

"Every crisis in the stock market is an opportunity to sell the dollar"

In foreign exchange transactions of domestic banks are struggling these days with the click of sales dollars.

"One of the things that affect drastically the strengthening of the shekel is Israel's economy led by high-tech sector," says Walla! Money

. "It is enough to see issues of billions of dollars every Monday and Thursday to understand the amount of dollars entering Israel. Tack on the impressive growth and below the strengthening of the shekel. "

Gitlin adds:" The main cause other impacts is the exposure of financial institutions abroad, especially the United States, so that every time the stock market in the United States increases, and since the crisis last year and a half has only one direction In this market, the shekel is strengthening to new highs. " In his view, "any crisis in the stock market that will raise the dollar-shekel exchange rate is an opportunity for sale."

President of the Manufacturers' Association, Dr. Ron Tomer (Photo: Mark Israel Salem)

"The government must act immediately"

One who is still staring at the falling dollar rate is the

: "The decline in unemployment is the result of a long struggle that succeeded thanks to the decisions of Finance Minister Avigdor Lieberman.

Quite a few times these decisions were accompanied by criticism, but thanks to the persistence we see today masses of Israelis returning to wake up in the morning and go to work.

A sustainable economy is an economy that is being worked on and not being worked on, and we are pleased that the Minister of Finance has joined the task, together with the Minister of Economy and Industry.

It is now important to maintain achievements.

Unfortunately, the dollar crisis that is occurring in parallel with the wave of rising raw material prices, shipping costs and rising wages could ruin the achievement.

"The government must act immediately in the face of the dollar crisis, reduce production costs under its control, such as energy costs, property taxes and more, and provide a business environment that can support the return of hundreds of thousands more Israelis to the labor force and increase productivity."

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