(Bloomberg) -- Israel’s currency rose for the eighth time in nine days on Friday as hopes for peace strengthened on the start of cease-fire talks in Qatar.
The gains put the shekel on course for its best monthly rally this year, as international mediators held negotiations with Israel to pause its war against Hamas in Gaza. The currency pushed above its 50-, 100- and 200-day moving averages this week, even as officials in the US and Israel warned of a looming attack by Iran.
The shekel’s resilience contrasts with moves in the options market, where traders’ nervousness over a recent spiral of violence pushed implied volatility to near a nine-month high. Strategists say the spot market appreciation is being led by fundamentals — including a current-account surplus, foreign-investment inflows and technology-led gains in Israeli stocks — and that a cease-fire could trigger a larger rally.
“It’s arguable that the shekel is 10% to 15% undervalued,” said Daniel Hass, head of shekel fixed-income strategy at Bank Hapoalim in Tel Aviv.
While the options market indicates that sentiment remains cautious against the threat of a broader war, with one-month implied volatility on the shekel headed toward a fifth successive weekly increase, the currency is holding up in the spot market. Since a selloff on Aug. 5 amid a global equity slump, it’s advanced 4.3% against the dollar.
An improvement in global risk appetite is limiting the impact of geopolitics on the Israeli currency, according Henrik Gullberg, macro strategist at Coex Partners.
“The US dollar is on the back foot and the beta to the broader risk environment has picked up,” he said. “Looking at the recent past, if the positive equity sentiment persists, the shekel has followed despite troubles at home.”
Gullberg said the currency screened as cheap in his short-term valuation matrix when compared with financial-market variables such as front-end rate differentials.
The shekel’s true value is 3 per dollar, Bank Hapoalim’s Hass said. An end to the fighting could help the shekel rally to 3.20 from about 3.67 as of Friday, but a war with Hezbollah and Iran could push it to 4.10 at least temporarily, he said.
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