As the market awaits the Bank of Israel's interest rate decision for April, the shekel has had a mixed opening against the major currencies this week. The shekel-dollar rate is currently down 0.4% in comparison with Friday's representative rate, at NIS 4.0368/$, while the shekel-euro rate is up 0.64%, at NIS 4.3562/€.
At 16:00 today, the Bank of Israel will announce the interest rate decision, against the background of a survey by HSBC last week according to which the central bank will lower the rate into negative territory and will launch a quantitative easing program of purchases of government bonds. The Tel Aviv Stock Exchange has risen sharply in response to HSBC's assessment.
FXCM Israel says in its market review this morning, "The shekel-dollar pair opens the trading week above the NIS 4.05/$ resistance level, and is traded at its highest level since August 2012. The pair's breakthrough upwards took place against the background of HSBC's assessment that the Bank of Israel will launch a quantitative easing program and cut its interest rate to a negative level.
"This review shook up the local market (bonds, stocks, foreign currency) and led speculators to push the pair higher. This reflex response by the speculators, however, will face a test in today's interest rate decision, with the probability that the Bank of Israel will really announce these two unprecedented and dramatic steps not high.
"If the Bank of Israel does not fulfill the market's expectations, based on HSBC's prediction, today, the shekel-dollar rate can be expected to correct sharply downwards. We estimate that the Bank of Israel will leave its interest rate unchanged today, and will wait at least another month in order to gauge the effect of its recent interest rate cuts. It could certainly be, however, that in the policy statement we shall see a more explicit signal about the bank's intentions on quantitative easing. If the Bank of Israel does embark on a quantitative easing program, that will undoubtedly make the depreciation of the shekel more extreme. In the end, there is no doubt that the gap between the policies of the central banks in Israel and in the US will lead to a continued rise in the shekel-dollar exchange rate in the near term. It could be, however, that the market jumped too high last week. The next target is the August 2012 peak of NIS 4.07/$."
Published by Globes [online], Israel business news - www.globes-online.com - on March 23, 2015
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