The Israeli shekel tumbled close to 4% against the dollar on Tuesday amid demand for the U.S. currency by institutional investors and big market players.
The dollar representative rate was set at 3.862 shekels, a gain of 3.6% and bringing the dollar’s gains on the Israeli currency since the shekel’s most recent high on February 21 to 11.6%. In late trading the dollar had pulled back to 3.8609 shekels. Against the euro, the shekel lost 2% to a representative rate of 4.2469.
“The sharp movements of the dollar against the shekel spring from a liquidity crisis,” Gilad Altshuler, CEO and partner in the Altshuler Shaham investment house, told a conference call to investors held by the Tel Aviv Stock Exchange on Monday.
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“Institutional investors have needed to buy billions of dollars to provide or to strengthen collateral overseas. They have been required to buy dollars in the Forex market and this is the dollar rate; at a certain stage when the markets have calmed, it’s clear that the trend will reverse,” he said.
The sharp drop in the shekel came as the Tel Aviv Stock Exchange enjoyed a rare day of gains. The benchmark TA-35 index finished 2.1% higher at 1,266.84 points while the TA-125 finished ahead 1.7% at 1,190.32. Even after Tuesday’s advance, the TA-35 has lost 27% since it began falling sharply February 19.
The TASE’s gain stood in contrast to other world markets. European shares retreated after an initial bounce on Tuesday and Wall Street’s main indexes slipped on Tuesday, a day after recording their biggest tumble since the crash of 1987,as damage being heaped on companies and economies across the globe from the coronavirus grew and kept financial markets on edge.
The rises on the TASE were paced by Yitzhak Tshuva’s Delek Group, which soared 51.5% to close at 104.20 shekels ($27.13). The energy company’s stock has been pounded by the collapse of global oil prices, but on Tuesday Israeli-U.K. billionaire Teddy Sagi emerged as a surprise buyer for its Delek Drilling unit. He is the second potential buyer for the unit since Citibank has sought to call in a loan to the unit.
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Other gains were posted by shares that have lost big in recent days – the Greek energy company Energean finished up 19.7% at 18.75 shekels, and Clal Insurance added 9.5% to 19.76. Fattal Hotels, however, finished down 14.8% at 86.23 shekels.
Yossi Fraiman, CEO of Prico Group, said the dollar could easily reach 4 shekels. He described the dollar’s strength as a local phenomenon, noting that trading in U.S currency is static during U.S. trading hours. Demand for foreign currency, mainly the dollar, is coming not only from institutions but major players in the Forex market, including importers and traders, seeking to reduce their shekel exposure.
Fraiman warned that the rapid shekel depreciation had reached “critical levels” and that many market players, such as importers and algo-traders, have issued stop-loss orders that are creating a snowball effect that is lifting the dollar higher.
“As long as we don’t see any stabilization in the coronavirus situation, or until there is a clearer picture as to the impact of the crisis, the race to safe harbors and to the dollar will continue ... The direction very much depends on what will happen in the global market more than in Israel.”
Kobi Eliasof, CEO of Mirvahim Capital Markets, termed the shekel’s losses a correction after a decade of appreciation for the currency, 10% in 2019 alone.
“Now what we have is a correction, and the Bank of Israel will not intervene, except perhaps if the exchange rate reaches 4.2 shekels, then it will sell some dollars. From my point of view, this is a welcome rise that will enhance the competitiveness of the Israeli economy.”
Israel’s central bank added hundreds of millions of dollars of liquidity to the foreign exchange market on Monday, with an auction of one-week dollar-shekel swaps with local foreign banks, offering dollars in return for shekels.
Elaisof said the program was aimed at the banks and has had no effect on institutional investors.
Leader Capital Markets said that the damage to the Israeli economy from the coronavirus would be significantly more than the Bank of Israel has forecast. The central bank said earlier this month that economic growth would be 0.7 percentage point less than previously forecast while Leader estimates that gross domestic product will shrink 3%.
Jonathan Katz, senior economist at Leader, compared the impact of the virus to that of the second intifada in the years 2001 to 2003, when gross domestic product contracted 3.1% in the first year alone.
“Then the economy suffered – for different reasons, of course – from the collapse of incoming tourism, a decline in investment due to uncertainty in the business sector and a drop in exports because of the dot.com crisis in 2001,” he said.
Katz said that fewer economists were now talking about a fast global recovery from the coronavirus crisis. If that’s the case, Israel’s high-tech sector will be slow to rebound and that will weigh on the entire Israeli economy, he said.
With reporting by Reuters.