USD/ILS: Looking to buy on a possible dip to 3.20 – Credit Suisse

Economists at Credit Suisse stick to a short-term USD/ILS target range of 3.22-3.32 – they continue to like buying USD/ILS on a possible dip to 3.20. Meanwhile , another round of general elections is now likely, but internal political developments are not going to have a material impact on the shekel.

Policy rate expectations have moved in a hawkish direction

“The fact that geopolitical tensions have subsided together with the residual underperformance of the shekel suggest that the near-term risk is skewed on the downside. We now see a risk that USD/ILS will fall to (and possibly below) the low-end of the 3.22-3.32 target range.”

“We still like buying USD/ILS on possible dips to 3.20. Judging by the current levels of the shekel’s NEER it still seems likely to us that the central bank will opt to scale up its FX markets intervention in case USD/ILS falls to the 3.20 mark. In a more extreme case, the central bank may even communicate its discontent with USD/ILS levels by officially increasing the amount of FX that it committed to buy this year.”

“The local political picture remains in limbo. The Gaza conflict reduced the possibility of a joint government coalition led by Prime Minister Netanyahu’s opponents – Naftali Bennett and Yair Lapid. If Lapid fails to form a coalition by 2 June, then the president could opt to allow parliament a 21-day period to try to form one. If both of these attempts fail the country will head into another general elections. We remain of the view that the political standstill is not going to impact the shekel in a meaningful way.”