And a low Shekel to Dollar exchange is not necessarily a bad thing.
According to its weekly report, Goldman Sachs says that if Joe Biden wins the Presidency next month than the Shekel will drop in Value against the US Dollar. This after the Shekel just saw a 1.5% gain against the Dollar, reported Globes.
Who would have thought that Israel would see a time when the Shekel would be too strong? Long gone are the days when the Israeli government controlled the Shekel’s official exchange rate and enacted regular devaluations of its own currency. This was because the country’s currency was too weak to let the market set its value and.
Israel’s generally weak economy also meant that regular devaluations of the Shekel were needed to encourage foreign investment and make tourism more attractive to foreigners who brought hard Western currencies with them.
But then came the success of Startup Nation, the free exchange of the Shekel, and the weakening of the Dollar. From an all-time low of being worth less than 20 cents in 2002, the Shekel has strengthened to as much as 3.20 to the Dollar and usually hovers around the 3.5 mark.
It got so bad at time that the Bank of Israel would even buy up Dollars, releasing more Shekels, in order to reduce the value of the Shekel.
Democrats raise taxes and did just that under Barack Obama and Bill Clinton. The result led to a lowering of budget deficits and a stronger Dollar. If Democrats take control of both houses of the Congress and Joe Biden becomes the President then they will be sure to undue as many of the Trump corporate tax cuts as possible.
This will lead to a stronger Dollar. And it will hurt Israel’s economy because higher taxes will diminish investments in Israeli high tech which has helped drive the strong Shekel.
As Goldman Sachs warns explains, “The strong correlation between shekel and tech stocks could result in shekel weakness in the event of a Blue Sweep in November, if this is perceived to result in higher taxes and regulations on the sector – making it an attractive hedge that is also positive to carry.”
“The shekel resumed its strengthening trend in late September despite Israel going through a second lockdown, which is likely to impose economic consequences on an already fragile economic growth outlook.”
But the lockdown is concurrent with continued recessions elsewhere because of Covid-19 and Israel continues to bring in money from foreign investments in its high tech firms.
When the Shekel dropped in 2002 Israel and the world were still reeling from the effects of the 2000 Dot Com crash. Money for high tech investment dried up, fewer Shekels were bought with Dollars to fund Israeli firms, and so the Shekel plummeted.
So look for the same thing to possibly happen next year.