Chris and all,
Seems the $$ repatraition may begin, I'm interested in comments on the effects of this:
US corporate tax move lifts greenback
By Steve Johnson in London
Published: October 13 2004 11:50 | Last updated: October 13 2004 17:36
The advent of the Homeland Investment Act caused the US dollar to strengthen once again on Wednesday.
News that US healthcare group Johnson & Johnson plans to repatriate $7bn to $10bn of retained earnings focused attention on the Act, a virtual 12-month tax holiday for US corporates to bring funds home.
The Bank of New York on Wednesday came up with one of the more bullish estimates of the effect of the Act, estimating that around $120bn of foreign-denominated assets will be translated into dollars. "Well over $100bn will flow through the FX market, with sterling and the euro most likely to be negatively impacted," said Michael Woolfolk, senior currency strategist.
The Royal Bank of Scotland sees flows of up to $100bn, half of this from the euro, with the Swiss franc also vulnerable.
Consequently the dollar rose 0.4 per cent to $1.2269 to the euro and 0.3 per cent to Y109.75 against the yen, with the breaching of stop-losses exacerbating the gains.
ABN Amro, which sees flows of around $72bn, also pointed to the fact that speculators entered the week with record short dollar-euro positions, leaving greater scope for a dollar rally as this is corrected.
The liquidation of long positions was also a factor in a slide in metal prices, with jitters over the pace of global economic growth and a move by the Shanghai futures exchange to increase margin requirements also playing a part.
With agricultural prices also softer, commodity currencies lost ground, with the Australian dollar falling 0.8 per cent to $0.7240 against the US dollar, the New Zealand dollar falling 0.5 per cent to $0.6742 and the Canadian dollar, a strong gainer of late, falling 0.7 per cent to C$1.26738 against its southern namesake.
Hans Redeker, global head of FX strategy at BNP Paribas, argued that base metal prices and the Canadian dollar were "too hot", largely because of speculative plays.
"The Canadian dollar has been one of the few moving currencies generating interest of speculative accounts. Indeed, non-commercial Canadian dollar long positions have reached a historic high, suggesting that the currency might face a vibrant correction once the trend turns around," he said.
Sterling was impacted by a number of factors, with UK earnings growth coming in a touch above expectations, but unemployment falling less than forecast.
Bank of England governor Mervyn King also played marionette, warning on Tuesday night that UK interest rates may not have peaked, with sterling's recent 4 per cent slide an inflationary factor, only to sound more dovish in a radio interview on Wednesday, arguing that monetary tightening had slowed consumer spending and the housing market.
Hawkish factors held sway, however, with the pound firming 0.3 per cent against the euro to £0.6853 and holding steady at $1.7896 to the US dollar.
Best,
Roebear |
