The HSBC bank is predicting an increase in the shekel-dollar exchange rate to NIS 3.51/$, and is recommending that its customers buy dollars. The recommendation signals a change in HSBC's position, which up until now predicted that the shekel would strengthen against the dollar. The bank bases its view on its assessment that the Bank of Israel will not allow the shekel-dollar exchange rate to fall below NIS 3.40/$. "Although there are still no signs that the strengthening trend of the shekel against the dollar has come to an end, we believe that in the short term, a substantial correction is likely, given the very low exchange rate," HSBC writes
In a paper released to investors yesterday, HSBC's analysts write, "The NIS 3.40/$ exchange rate level is critical. We remind you that in the past, the Bank of Israel responded very aggressively when a breakthrough of the NIS 3.40/$ rate appeared likely - the Bank of Israel twice unexpectedly cut its interest rate and bought large quantities of dollars."
The analysts added that the today's opening conditions were different from those that prevailed in the summer of 2014, the last time that the Bank of Israel came to the defense of the shekel-dollar exchange rate. At that time, the dollar had begun a prolonged uptrend, while it now appears that the dollar is in the midst of a downtrend. The current Bank of Israel interest rate of 0.1% leaves the central bank with little ammunition in this instrument.
"In our assessment, the Bank of Israel will be unable to remain inactive this time, although its room for maneuver is very limited," HSBC writes. The analysts note that the Bank of Israel has the option of buying masses quantities of dollars, as it did in the first half of 2017, but they believe that comprehensive activity with the government, which could include a change in the government's foreign currency debt hedging policy, measures for encouraging exports of Israeli capital, and even steps like buying bonds in foreign currency, is more likely.
As of web posting, the shekel-dollar exchange rate was NIS 3.425/$. Unconfirmed rumors are circulating that the Bank of Israel is intervening in trading, but the Bank of Israel did not respond to questions on the subject. Market sources say that no purchases by the central bank were observed, despite the rumors.
Nevertheless, foreign currency market sources noted that yesterday and today, Canadian company Potash Corporation had made large-scale purchases of foreign currency, following a $700 million sale of Israel Chemicals (TASE: ICL: NYSE: ICL) shares .
Published by Globes [online], Israel Business News - www.globes-online.com - on January 18, 2018
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