Shekel’s Surge Halted Amid Intervention Uncertainty
Shekel’s 25-Year Rise Halted Amid Uncertainty Over Intervention
(Bloomberg) -- Israel’s shekel surged to a 25-year high against the dollar Tuesday as expectations of an interest rate rise spread, then weakened abruptly amid speculation the Bank of Israel had intervened to tamp it down.
The shekel has been gaining on record foreign investment in the tech sector, a growing current-account surplus, and heavier shekel-buying by Israeli institutional investors looking to hedge their overseas holdings. In January -- when the currency was weaker than on Tuesday -- the Bank of Israel announced a $30 billion foreign exchange purchasing program to rein in the shekel.
The bank purchased more than $25 billion in foreign currency in just the first half of the year, and today, has less than $2 billion left in the till. Governor Amir Yaron has said repeatedly that $30 billion is not a ceiling and the bank would intervene in the market as needed, and his spokesman referenced that stance when asked to comment on whether the bank had bought foreign currency on Tuesday.
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On Tuesday, the shekel reached a quarter-century high of around 3.10 to the dollar, before swinging down to 3.13 within the space of a couple of hours. The currency was trading at 3.1383 to the dollar at 6:21 p.m. in Tel Aviv.
The forex-purchasing program had managed for months to keep the currency bottlenecked around 3.20 to the dollar, said Daniel Hass, head of fixed income and currency strategy at Bank Hapoalim in Tel Aviv. But late last week, the market began to churn.
“Because of the strength of this economy, because of the demand for shekel from various sectors, because the Nasdaq and S&P have been so buoyant, then, as a result, we had essentially the breach of the dam,” Hass said. “It’s mission impossible.”
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Alex Zabezhinsky, chief economist at Meitav Dash Investments Ltd. in Tel Aviv, said the trigger was increasing expectations in the bond market of an interest-rate rise as inflation quickens. Traders were also likely influenced by recent announcements on tightening policy by the central banks of Australia and Canada.
Modi Shafrir, chief strategist for Mizrahi-Tefahot Bank in Ramat Gan, said the shekel is also being buoyed by uncertainty over how heavily the central bank will intervene in the currency market, now that it’s all but exhausted the $30 billion, as well as the rise in global equity markets, which probably led Israeli financial institutions to sell dollars.
The Israeli economy and its currency market have changed significantly since the shekel last reached this level against the dollar, more than 25 years ago, so looking at historical data makes it difficult to predict future price movements. “It really makes forecasting almost impossible,” Hass said.
The strengthening shekel has hurt Israeli exporters, who are getting less money for their goods and services, said Ron Tomer, president of the Manufacturers’ Association of Israel.
At the same time, if the shekel drops again below 3.10 and stays there, that could affect inflation because it would reduce the cost of imports, Bank Leumi Le-Israel Ltd. wrote in a recent investor note.
That could “have a moderating effect on the rise in the consumer price index in Israel and may consequently postpone the start of raising the Bank of Israel interest rate,” the note said.
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