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12-year high: The shekel continues to strengthen against the dollar despite the crisis
The strengthening of the shekel against the dollar means that there are more dollars entering the economy than those leaving it.
Reasons for strengthening: Foreign investment in Israel exceeds exports and positive macro data.
The dollar weakened mainly due to rises in stock markets in light of Corona vaccine publications
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dollar rate
The shekel exchange rate
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NIS
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Sonia Gorodisky
Monday, 23 November 2020, 23:28
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Photo: Reuters
Despite the great economic crisis in the country's history, the prolonged political instability, the lack of a state budget and the unprecedented deficit, the Israeli currency continues to surprise and breaks new records.
The dollar exchange rate has returned in recent days and has stabilized against the shekel at the level of NIS 3.34 to the dollar - the lowest level in 12 years.
The strengthening of the shekel against the dollar means that there are more dollars entering the economy than those leaving it.
When the amount of dollars in the economy is large - the price of the dollar falls, and the shekel strengthens.
The current account surplus is not a new phenomenon, and it has been around for more than a decade.
Although the dollar has depreciated slightly, this is a gradual decline that continues in the US currency, mainly due to the excess supply of foreign currency in the country.
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One-dollar bills are tested during production in Washington (Photo: Reuters)
Why is the shekel strengthening?
There are several reasons for the strengthening of the shekel: The first is the surplus in the current account of the balance of payments, ie the amount of money entering Israel - greater than the amount of money leaving it.
The money comes out of Israel through exports and comes in through foreign investments.
Israeli high-tech, which is a significant component in exports, was not harmed during the Corona period and even strengthened.
On the other hand, in recent times the growth trend of foreign investments in Israel has intensified, for example acquisitions of high-tech companies.
The second reason is the management of the investments made by the institutional bodies.
During periods when there is an increase in stock markets abroad, private entities (such as pension funds) increase the share of stocks in portfolios, which they purchase in foreign currencies. , And thus actually cause the shekel to strengthen.
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To the full article
The dollar weakened against most of the currencies in the world.
Declines on Wall Street (Photo: AP)
The third reason is the positive sentiment towards the shekel - which stems from strong macro data recently published.
Among other things, growth data for the third quarter and positive statements by international bodies regarding the Israeli economy.
S & P's decision to leave Israel's credit rating unchanged, and the International Monetary Fund's announcement that Israel's position is relatively good compared to other developed countries, is well reflected in the strengthening of the Israeli currency.
In addition, the interest rate on the shekel is also positive, making it a more attractive currency in the eyes of foreign investors.
Especially in light of the fact that yields abroad are lower.
Why has the dollar weakened?
The dollar has weakened recently against most of the currencies in the world, and also against the shekel.
This is due to the rises in the stock markets, which are mainly due to the publications regarding vaccines against Corona.
Optimism has returned to the markets, so investors are buying more stocks and abandoning investments in dollars.
Is the Bank of Israel not bothered by the strong shekel?
The Bank of Israel has every reason to be concerned about the strong shekel because it harms exporters.
Because Israel is an export-oriented economy (that is, exports higher than imports), a low exchange rate hurts not only exporters but also GDP.
How does the Bank of Israel intervene?
The Bank of Israel occasionally intervenes in foreign exchange trading, and in order to strengthen the dollar, it buys dollars and sells shekels.
This move usually happens when the Bank of Israel sees speculative reasons for the strengthening of the shekel.
Because these are now economic reasons that justify the strengthening of the shekel, the Bank of Israel is intervening, but on a smaller scale.
In order to achieve the maximum effect, the Bank of Israel maintains an element of surprise during its interventions in the foreign exchange market, so we usually do not know for sure whether there was an intervention or not.
Can buy dollars and sell shekels.
Bank of Israel in Jerusalem (Photo: Reuters)
At the end of each month, the Bank of Israel publishes the foreign exchange reserves, and according to this it is possible to know with certainty how many purchases during each month.
However, it is not possible to know with certainty how many foreign currencies the Bank of Israel purchased during a particular trading day.
Can the Bank of Israel change the current trend of strengthening the shekel?
The Bank of Israel can make a point-based effect, but cannot change the long-term equilibrium between the various currencies and the shekel.
It cannot balance the amount of dollars entering Israel, but it can slightly balance the trend to help exporters.
Worker disappointed on Wall Street due to sharp declines in trade (Photo: AP)
What is the forecast for next year?
Roni Gitlin, Securities Trading Manager at Bank Leumi, explains that "after seeing the shekel reach $ 3.88 this year during the crisis, it does not seem to be the direction at the moment. As long as the stock market recovers, the shekel strengthens against the dollar. The situation. "
According to him, "it seems that the direction in which the shekel is going is $ 3.20, and it is already worth seeing if the direction changes by a few percent upwards."
On the other hand, Ofer Klein, Harel's chief economist, is convinced that it is impossible to know what will happen next.
"No one knows what the exchange rate of the dollar-shekel will be in the future," Klein clarifies.
"The trend is now the strengthening of the shekel. The number is derived not only from the performance of the shekel, but also from what is happening with the dollar in the world."
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