It has been a stormy session on the foreign exchange market this morning after the peaks reached yesterday on the US stock market and the record price of Bitcoin. After the Bank of Israel used up about a quarter of its foreign purchasing plan for 2021 in January, Governor of the Bank of Israel Amir Yaron made clear earlier this week that the program could exceed the planned $30 billion. The assessment on the market, however, is that although the Bank of Israel's can be expected to blunt some of the forces tending to make the shekel appreciate, in the long run, the basic forces (such as: the current account surplus, equity offerings by Israeli companies overseas, acquisitions of Israeli companies by overseas companies, direct inward investment) still support continued appreciation.
The shekel-dollar rate is currently down 0.81% in comparison with yesterday's representative rate, at NIS 3.2553/$, and the shekel-euro rate is down 0.25%, at NIS 3.9391/€.
Kobi Levi, head of market strategy at Bank Leumi (TASE: LUMI), told "Globes", "The US dollar has done things both at home and abroad, but what we are seeing at the moment is not a question of what is happening with the dollar but of the strengthening the shekel. Already yesterday a flood of dollar selling began. Most of the market understands that this is the new normal and is prepared to sell at these rates, but the Bank of Israel has been offsetting this. The open question is whether it will manage to keep up this pace for the rest of the year. The basic forces on the market support appreciation of the shekel, while against them the Bank of Israel is making massive, and correct, moves. I see the Bank of Israel as buying time for Israel's private sector by buying foreign currency; the question is whether the Bank of Israel's determination will be enough.
"The sellers are selling foreign currency more than they are buying shekels. I have seen this develop on the market in the past month, and you have to look at who helped the shekel reach NIS 3.30/$ - and the answer is the Bank of Israel, when it announced its foreign currency purchasing program for 2021. It must be stressed that it amounts to at least $30 billion. The governor said this yesterday, Deputy Governor Andrew Abir said it before him, and that is what happened in the past: governors of the Bank of Israel ended the year above the level set at the beginning of it. In January alone, the Bank of Israel bought about 20% of the total, which means that it could reach the quota that it set quickly. Israel enjoys a current account surplus of the order of $20 billion, which means that a lot of the money that the Bank of Israel is going to invest will offset by this flow, but $30 billion will not be enough be enough, if we assume that the flow of foreign currency to Israel will continued at the same rate," Levi said.
"From a technical point of view," he continued, "the situation that has been created is that those selling dollars are prepared to do so at NIS 3.30/$. The Bank of Israel bought, and those selling to it are mainly local players. The more the exchange rate rises, the more dollar sellers there will be, and there's a level at which there aren't enough buyers. NIS 3.30/$ has become the new normal," he said.
Published by Globes, Israel business news - en.globes.co.il - on February 9, 2021
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