Israel’s shekel strengthened to the highest level in almost eight months amid speculation the onset of domestic gas production next year will improve the nation’s trade balance, lifting the currency.
The shekel rose as much as 0.5 percent to 3.7596 a dollar, the strongest intraday level since May 1, before trading at 3.7621 at 4:31 p.m. in Tel Aviv, bringing this year’s appreciation to 1.3 percent, the second-best performer in the Middle East, according to data compiled by Bloomberg. The 5.5 percent benchmark government bonds maturing in January 2022 fell, pushing the yield up 5 basis points, or 0.05 percentage point, the most since Nov. 14, to 3.76 percent.
Israel is set to start pumping gas from the Tamar field by June, enabling it to reduce its dependence on Egyptian gas for much of its electricity generation. The current account balance may improve by as much as $3 billion next year as fuel flows start, according to estimates of I.L.S. Brokers Ltd. For every $1 billion improvement in the balance, the exchange rate should appreciate about 1 percent, the Bank of Israel has estimated.
“The recent appreciation in the shekel-dollar rate was derived from investors’ assessment of the expected improvement in Israel’s balance of payments in 2013,” Modi Shafrir, chief economist at Tel Aviv-based I.L.S. Brokers, said by phone.
The currency jumped 1.8 percent last month, the best performer among an expanded list of 31 major currencies tracked by Bloomberg. Since July, it’s strengthened 5.9 percent, compared with an average gain of 1.7 percent for emerging market currencies, Shafrir said.
The government this week raised its 2013 economic growth forecast to 3.5 percent from 3 percent to account for the effect of natural gas discoveries. The shekel’s three-month implied volatility, which reflects traders’ expectations of currency fluctuations over the period, fell two basis points to 7.8 percent, the lowest level since Dec. 12.
Israel’s move to produce its own fuel comes after Egypt cut its flow of gas to the country this year, forcing companies to switch to more-expensive imported alternatives. Israel posted a current account surplus in the third quarter, its first in a year, as imports declined, the Central Bureau of Statistics said Dec. 16.
Israel’s Delek Group Ltd. (DLEKG), Noble Energy Inc. (NBL) and other exploration companies have discovered enough gas under the Mediterranean Sea over the past three years to supply the country’s needs for 150 years. The Tamar and Dalit fields are scheduled to start production next year, with output at the Leviathan field, the nation’s largest, starting three years later.
“We expect to see the strengthening impact on the shekel to steam up in 2014 and 2015 as more gas starts flowing,” said Rony Gitlin, head of spot trading at Bank Leumi Le-Israel Ltd. in Tel Aviv.
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