After reaching a three-year high earlier this week and crossing the NIS 3.8/$ line intraday, the shekel-dollar exchange rate has fallen back this morning.
The rate is currently down 0.5% in comparison with yesterday’s representative rate, at NIS 3.769/$, while the shekel-euro rate is down 0.02%, at NIS 4.0934.
The risks to the shekel come from several different directions, both internal and external. The judicial overhaul promoted by the government and the protests against it, and the uncertainty about the next steps, are to a large extent responsible for the negative sentiment, beyond the strengthening of the US dollar on world markets. Among other things, financial institutions in Israel have raised their foreign currency exposure by about 22% over the past year. In addition, the deterioration in the security situation has not helped the local currency.
A senior foreign exchange market player told "Globes" this morning that the main story behind movements in the exchange rate was still the political crisis in Israel. "The local factor is what is responsible for the volatility in the foreign exchange market," he said. According to this source, the external view of the Israeli market remains positive, as evidenced by the confirmation by Fitch of its sovereign rating for Israel, despite the heavy fears in the domestic arena.
The source said that, historically, there existed correlation between the foreign exchange market in Israel and US stock indices. Israeli financial institutions would adjust their currency exposure in accordance with movements on the stock markets. "Today, we are seeing this connection less, and even when the Nasdaq index strengthens significantly, the financial institutions are maintaining their increased currency exposure. So far this year, the institutions have bought over $5 billion."
As for the strengthening of the shekel in the past couple of days, the source to whom we spoke stressed that the currency market’s standard deviation was high, meaning that the market corrects itself sharply after strong movements in the shekel. "Despite the good financials in the US markets and our own stock indices, foreign investors are waiting to see what the market will look like after September, which will be a very tense month, with the ruling of the High Court of Justice on the law abolishing the reasonableness standard in judicial review."
Will the correlation between the foreign exchange market in Israel and US stock indices return?
Market analysts say that the falls on US markets in early August weakened the shekel, as local financial institutions with holdings in those markets moved to balance their currency exposure by buying more dollars.
Now, we are seeing the other side of the impact of the US on the Israeli market. Yesterday, the Nasdaq rose 1.5% and the S&P 500 more than 1%, and the recovery led to a strengthening of the shekel.
The positive trend in US markets mainly stemmed from good financials from microchip giant Nvidia, which reported quarterly earnings per share of $2.70 on revenue of $13.5 billion, beating the consensus estimate of $2.07 earnings on $11.17 billion revenue.
Nvidia’s strong results contributed to a revival of positive sentiment on Wall Street after three negative weeks. US stock futures are trading positively this morning, after Nvidia’s results calmed fears of technology company stocks being inflated.
Published by Globes, Israel business news - en.globes.co.il - on August 24, 2023.
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