Dollar closed at NIS 4.943 against shekel in options trade

The dollar soared to NIS 4.943 against the shekel in options trade, up 1.4% from Friday representative exchange rate, NIS 4.876. The shekel hit an all-time low mid-day, reflected in dollar options that traded at NIS 4.96.

Investment bank Excellence's dealing room said that trade was marked by demand from dollar mutual funds, into which the public continues to inject money. In addition, speculators who had banked on the shekel devaluating, have been forced by the banks to close positions, Excellence said, adding that other entities are buying dollars at levels they deem justify acquisitions.

Excellence said there is no inter-bank trade on Sundays and liquidity is very low, so there were no sellers for those who wanted to acquire dollars. In this situation, even low demand can boost the dollar, Excellence explained.

Excellence said that trade was also affected by the terrorist attack on the Adora settlement on Saturday, in which four people were killed. The attack came after a relative lull in terror attacks and increases security uncertainty, Excellence said. In addition, there is uncertainty about the treasury's emergency economic plan, Excellence said, noting nobody quite knows what form the plan, which has yet to be approved by the cabinet and Knesset, will eventually take.

Excellence added that the scandal in Trade Bank is badly hurting the credibility of the banking system, providing investors with another reason to transfer money overseas.

An assistant investment director at Trade Bank embezzled up to NIS 250 million.

The main question is what will the public do? Excellence said. Excellence dealing rooms estimate that given activity in recent days, the public is likely to continue injecting money into dollar instruments and into investments overseas. The psychological resistance level of the dollar trading at NIS 5 against the shekel is approaching, Excellence said. Given the lack of confidence that the public feels in Finance Minister Silvan Shalom and Prime Minister Ariel Sharon, only Bank of Israel Governor David Klein can stop the shekel landslide, dealers estimate. The governor can do this by sharply raising interest rates by at least 1%, the dealers said.

On Friday investment bank Prico said that the main question is the ratification of the plan to change the tax on shekel and currency instruments.

Prico said that imposing tax on assets overseas could revaluate the shekel, but imposing tax on shekel instruments and equalizing tax on foreign currency deposits in Israel and overseas will encourage changing the structure of the public's holdings in Israel, and support further devaluation of the shekel.

Prico estimates that the dollar will trade at NIS 4.78 to NIS 4.92 until the Rabinovitch tax-reform plan becomes known at the end of May, and until the structure of the treasury's emergency economic plan becomes clear. Prico said that breaking through the upper resistance level will support the dollar rising toward NIS 5.