The USD is the principal driver, Q1 US repatriation flows surge - Westpac

 Richard Franulovich, Head of FX Strategy at Westpac explained that there is no shortage of important idiosyncratic currency market drivers outside the US.

Key Quotes:

"Notable examples include weakening credit fundamentals in a number of emerging markets, ongoing questions marks about Italy and China’s growth slowdown and policy easing there.

“The dollar factor is the overriding force in currency markets at the moment, by an even more substantial margin than usual."

"The dollar is of course always a major driver but at the moment this factor and the underlying forces driving it, including the Fed, Trump’s fiscal stimulus, the US’ relative economic and yield outperformance and Trump’s trade agenda is overwhelmingly dominating global FX markets, by an even more substantial margin than usual. The only time this USD factor was more significant was the 2008 financial crisis."

"Q1 US balance of payments data show a surge in the repatriation of overseas earnings thanks to the 2017 Tax Cuts and Jobs Act. After building up a stock of $3trn in earnings held offshore US corporates repatriated $300bn in Q1."

"Company reports suggest upwards of 90% of US corporates’ retained earnings held offshore are USD denominated. At best these flows are then a handy small additional tailwind for the USD. That said, share buyback programs have grown sharply and offshore USD funding markets in several jurisdictions have faced significant disruptions this year. It’s not clear how much has been frontloaded. But, even if repatriation flows slowed to say half Q1’s pace for the balance of 2018 that would still amount to around $750bn in repatriation of earnings for the year."