The shekel-dollar exchange rate resumed the trend of the past few weeks today (after dropping 0.5% on Friday) and posted a sharp rise of 0.97%. The Bank of Israel set the representative rate at NIS 3.7460/$. Since the low of NIS 3.4/$ recorded in July, the rate has risen by 10%. The representative shekel-euro rate also rose today, by 0.86%, to NIS 4.7841.
"The rise in the shekel-dollar rate is a trend that has been with us for the past few months, and is product of weak macro figures in the local economy," Halman Aldubi investment manager Amit Rosenzweig said today, "The last CPI reading was minus 0.3%, when it was expected to be minus 0.1%, there is no expectation of high inflation figures down the line, and there is a fear that the Israeli market is entering some kind of deflation. Economic growth, according to the Central Bureau of Statistics, will be 2.2% this year, whereas in 2013 it was 3.2%; in other words, the economy is slowing sharply.
"The slowdown raises expectations that the Bank of Israel will continue to be aggressive with an expansionist monetary policy, meaning further interest rate cuts towards zero, and even bond purchases at the long part of the curve. The result, as soon as the interest rate gap starts to be in favor of the US, is that the shekel starts to weaken, while at the same time the dollar strengthens globally because of fears of a slowdown and deflation in Europe and expectations of expansionary monetary policy there too."
Rosenzweig estimates that as long as the US macro figures continue to show improvement and a dollar interest rate rise in seen on the horizon, the dollar will continue to strengthen against most currencies, including the shekel.
Published by Globes [online], Israel business news - www.globes-online.com - on October 20, 2014
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