U.S. Dollar Hits a Three-year High Last Week

Despite stronger greenback, trade deficit has been widening, but exporters hope weaker shekel will make Israeli goods more attractive abroad.

The U.S. dollar hit a three-year high last week against the shekel, rising to NIS 3.978 on Thursday before declining somewhat on Friday, to NIS 3.968.

The recent weakening of the shekel against the dollar has been welcome news for Israeli exporters, because it makes their products cheaper in dollar terms. It also means, however, that importers of goods priced in dollars are shelling out more shekels for them, an increase that in many cases is passed on to the consumer. On Thursday, the Central Bureau of Statistics reported that Israel’s foreign trade deficit for the first half of the year, the excess of imports over exports, was running at an average of NIS 6.3 billion a month. For June alone, it was NIS 7.3 billion.

If that pace continues over the second half of this year, it would leave Israel with an annual trade deficit that is 45.8% higher than last year’s. Such a trend, however, would tend to further increase the value of the dollar against the shekel. In fact, from April through June, the level of imports declined, following a rise the previous three months. The level of Israeli exports also declined from April to June.

In June, 90% of the NIS 14.7 billion that Israel exported were of industrial products; 7% was diamonds and 3% agricultural produce. On an annualized basis, the level of hi-tech exports, which are nearly half of all industrial goods the country exports, declined by 10.7% from April through June.

Over the past six months, NIS 3.2 billion in agricultural products were exported, which was 3.1% more than the comparable period last year. Citrus exports increased by 39.4% for the first half of this year while flower exports declined by 12.9%.

“The recent reduction in the interest rate by the Bank of Israel and speculation over additional reductions in the future decrease the incentive on the part of foreign investors and major local players to buy the shekel,” the foreign exchange firm FXCM Israel commented Thursday. “Continued deterioration in world markets and demand for the dollar could continue to push the dollar-shekel rate upwards,” the firm said.

“Under current conditions of uncertainty and concern, investors are looking mainly for more secure assets and the leading secure asset is the dollar,” the firm added. For her part, however, Perico Risk Management’s CEO, Vered Yitzhaki, said despite the dollar’s gradual strengthening, the greenback has found it difficult to break through the psychological barrier of NIS 4 to the dollar.