TD on USD repatriation - a wild card for the USD, not a game changer
TD Securities on the US tax plan, Apple's announcement and repatriation more generally
My summary of the bank's note (without going into too much detail on the ins and outs of the new tax act, $/non$ holdings etc. ... and bolding mine):
- The news that Apple plans to pay $38bln in taxes to the US has sparked a debate about the FX market implication of the new tax plan ...
- for the FX market, as timing of flows could be less synchronized.
- offsetting forces to the FX market, as the longer-window for repatriation reduces the risks of a "chunky" flow of capital moving through the market at once
- another focus of currency watchers is whether this stock of foreign capital is held in $ or foreign currency
- the FX market only cares about the amount held in non-$
- Some estimates show that up to 95% of this offshore cash is held in $-denominated securities
- ... leaves a possible FX flow of $70bln
- This is a touch below our original estimates. Still, for the FX market, it again needs to be taken in context against a $3,000bln spot market and an annual US current account deficit of nearly $550bln
- This backdrop leaves us believing that the impact of the repatriation is likely a wild card rather than a game-changer for the $.
- Equities could benefit from share buybacks and dividends payouts ... Indeed, another equity boost could offer tailwinds to global financial conditions, reinforcing the reflation trade and policy normalization outside the US. For the $, this backdrop would further hinder it - not rescue it.