Israeli Shekel vs Canadian Dollar outlook for the first 2 quarters of 2016

I have many clients who still have dealings with Israel and wish to have a update from time to time about what is likely to happen with the Shekel (ILS).

I have been in the currency trading business since 1987.  One of my favorite comments when it comes to what causes currency fluctuations is ‘that 50% of the time the market moves because of discussions or movements that directly affect interest rates , and 25% of the time other economic numbers – such as  job numbers, inflation, purchasing index, etc. – move the market, and the other 25% of the time I have no clue what is moving the market!’ 

The world is a big place and when you see the volatility in the currency markets you realize that some things are beyond your scope. 

When I scan the news items concerning Israel, I marvel at the amount of Israel based companies who are being bought by major international corporations for significant premiums. 

These purchases have a strengthening effect on the ILS as companies change their Euro or Dollars or GBP into ILS. 

Obviously the Canadian $ is not buying as much/many ILS as it did in the past.

The chart above shows the last 2 years in a glance and as you compare the above chart to the one just below (C$ vs. WTI) you can see the link between the November 2014 fall of WTI Oil to the diminished value of the CAD$

I am really not sure if I should be writing about the Canadian $ move against the Israeli Shekel, since the CAD/US$ move has been far more impactful on the market. 

Of course there has been a very strong linkage between the price of oil and its impact on the Canadian economy and the Canadian $ versus the US$ 

 The bank of Israel has been keeping interest rates steady for 11 straight months, the longest streak in at least 21 years.  

Keeping the base lending rate at a record low of 0.1 percent. 

One economist wrote about Israel, saying:-  ‘Deflation is persistent, inflation expectations are collapsing. They’re going to make the case for potential easing down the road, and that should weigh on the shekel.’

There isn’t room to lower interest rates much more.

So unless the bank of Israel starts to go into negative territory with interest rates, we are likely to see another 4 to 6 months of modest fluctuations in its current ranges with the currency because only economic data will move the market.

The biggest impact on the Canadian $ has been the price of oil for the last year, and that is likely to be the case for the next 4 to 6 months as well. 

Please note that the Bank of Canada has a similar low interest rate policy in place (starting in January 2015 with a 0.25% cut) and is unlikely to move any further in the short term because of the same deflation and inflation conversation. 

So I expect the C$ to remain in a weakened state for the foreseeable future. 

With this currency pair (ILS/CAD) my expectation is that trading is likely to be in the 2. 65 to 2.9 for the next 6 months, as long as oil prices remain in the current $30 range. 

Clients that place market orders have been able to secure a better rate lately –as long as they have time to wait since the market moves so erratically.  

We have had some success with putting a target price higher than the current market and watching deals get done at all hours of the day and night due to the volatility in the market.

Let me know if you have a need and we will try to get you the best price possible.

Regards

Jeffrey R. Dorfman