The shekel is strengthening against the dollar today for the seventh straight trading day. In inter-bank trading this afternoon the shekel-dollar rate was down 0.56% to NIS 3.271/$, the strongest the shekel has been trading against the dollar since July 2008.
The shekel-dollar exchange rate only briefly flirted with these levels in 2008, just before the peak of the sub-prime financial crisis and before that you have to go back to January 1997 to see the shekel at these levels. If the Israeli currency continues strengthening and the exchange rate goes below NIS 3.23/$, and most analysts believe it will carry on gaining in the short term, then the shekel will be at its strongest since November 1996.
Even intervention by the Bank of Israel cannot seem to stop the shekel's appreciation. Last Thursday the Bank of Israel reportedly purchased hundreds of millions of dollars in foreign currency, boosting the already record high level of its foreign exchange reserves, but it only made a dent in the shekel's advances. Moreover, the Bank of Israel has refrained from declaring that the shekel is too strong, a silence that has given the green light to speculative investments in the Israeli currency.
The weakness of the dollar against most of the world's currencies stems from the belief that the Covid-19 crisis is coming to an end. Such a belief increases investor appetite for riskier investments and they have been shifting their money from dollar assets (considered a haven investment) to more assets in more speculative currencies, including shares and bonds in emerging markets.
Among the factors that are supporting the further strengthening of the shekel, is Israel's large trade surplus since the beginning of 2020. This surplus is a result of the strength demonstrated by Israeli exports that have remained stable and even grown in the high-tech sector while there has been a sharp fall in imports. A second factor is the growth in direct foreign investments in the Israeli economy, which amounted to $15 billion in the first half of 2020 compared with $19 billion in all of 2019. On top of this, as stock markets rise overseas, Israeli institutional investors must hedge their dollar investments by purchasing Israeli currency, further contributing to shekel gains.
Meitav Dash chief economist Alex Zabezhinsky sees the shekel continuing to strengthen over the next year. "The Bank of Israel will try to 'trim' the trend but not change it because there are today less reasons to prevent the shekel from strengthening. In contrast to 2019, the shekel is far from being the world's strongest currency. Many other currencies have strengthened by more than the shekel against the dollar, and in particular the euro. In contrast to last year, the appreciation of the shekel has taken place alongside the weakening of the dollar worldwide, so we are not talking about a local trend and Israel's exports have stood out in terms of growth during the virus when private consumption was hit more significantly. This fact is less supportive of intervention by the Bank of Israel."
Published by Globes, Israel business news - en.globes.co.il - on December 3, 2020
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