US: Impact of HIA 2.0 on FX - TDS

Mark McCormick, North American Head of FX Strategy at TDS, notes that the Republication sweep has brought fiscal policy back on the table with corporate tax reform high on the to-do list, rekindling thoughts of the HIA in 2004.   

Key Quotes

“For many market participants, the potential repatriation of corporate cash locked overseas has shifted on the radar screen. This reflects the large stock of overseas earnings and the possible impact these flows could have on USD-denominated assets.  Indeed while policy uncertainty remains high, many observers see tax reform as low hanging fruit for the Republican majority.  We think this increases the scope of corporate tax reform in 2017.”

“We estimate a stock of nearly $2,000bln in foreign earnings but think this number significantly overstates the expected FX flow on corporate reform. For the USD, an implication of our analysis is that tax reform could amplify the cyclical tailwind into 2017, boosting gains against EUR, GBP, JPY, and CAD.  But a push towards HIA 2.0 is not a gamer-changer for FX.”