Bank of Israel buys $400m in foreign currency

Karnit Flug

The shekel's appreciation against the dollar has been moderated by the Bank of Israel's aggressive intervention.

The shekel's appreciation has been stemmed by aggressive foreign currencies purchases by the Bank of Israel. Market sources estimate that the Bank of Israel bought $400 million in foreign currency today after buying up to $75 million yesterday. The shekel had strengthened by more than 2% against the dollar following disappointment by speculators on Monday that the Bank of Israel Monetary Committee headed by Governor Dr. Karnit Flug had left the May interest rate unchanged at 0.1%.

The Israeli currency is strengthening against the dollar and weakening against the euro in inter-bank trading this afternoon. The shekel-dollar exchange rate is trading down 0.45% against the dollar at NIS 3.876/$, and up 0.18% against the euro at NIS 4.62/€.

Yesterday, the Bank of Israel set the shekel-dollar representative exchange rate at NIS 3.894/$, down 0.941% on Monday's rate, and set the shekel-euro representative exchange rate at NIS 4.254/€, down 0.127%.

FXCM Israel research department said this morning, "The shekel-dollar exchange rate continues its freefall and over the past 24 hours has even fallen below the key NIS 3.85/$ level. In effect, the breakthrough below the NIS 3.90/$ threshold on Monday - a level with major technical significance - gave a green light for a wave of selling, and the shekel-dollar exchange rate thus accelerated downwards. Even though the long-term trend for the exchange rate is for a rise, in the short term the momentum is with short traders and long traders will prefer rejoining the game when at lower trading exchange rates. The next target is NIS 3.82-3.84/$ , the low-point of February and March, and it is reasonable to assume that there we will see a little more demand that may stabilize the shekel dollar exchange rate."

"The trigger for pushing the shekel-dollar exchange rate downwards was the Bank of Israel's decision to leave interest unchanged and its awkward policy statement, in which it was difficult to find any genuine intention of implementing extreme measures in the next month or two. However, the main factor which brought a turning point in the trend of the shekel-dollar exchange rate over the past month has been the weakening of the dollar on world markets. The US currency continues correcting downwards and demonstrating weakness against other major currencies due to the deterioration in US macroeconomic data and the hesitant tone voiced by the US Federal Reserve. Within this context the Fed today announces its interest rate decision. If this time too the Fed talks feebly about the timing of a future rate hike, pressure will pile onto the dollar, which could see the shekel-dollar exchange rate fall further. On the other hand, if the Fed toughens up its rhetoric, this could see a rise in interest rate pricing in the market, and the shekel-dollar exchange rate could recover back towards NIS 3.87/$.

Published by Globes [online], Israel business news - www.globes-online.com - on April 29, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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