The Border of Tax Insanity

The latest idea floated by the incoming US administration is a complete re-think on taxation with a centre-piece of a system that hits companies harder who import and rewards exporters. On Wednesday, the euro was the top performer while the Canadian dollar lagged. Early in Asia-Pacific trading, New Zealand GDP beat expectations.

أين أخطأنا في اليورو و الدولار و ماذا بعد؟ (فيديو للمشتركين فقط)

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The idea of a 'border tax' as part of corporate tax reform is grabbing headlines and the consensus view is that it would be good for the US dollar as it incentivizes companies to move production to where the goods are sold and US exporters would be rewarded with cheaper tax rates.

It's still at the idea stage but it could be a messy system. Imports would be 20% more expensive and it would be packaged as part of a comprehensive tax reform.

Where the real trouble starts is in retaliation. The proposed system would be a de facto tariff and it wouldn't fool other countries. It's likely to violate trade deals and the chance of other countries accepting it without hitting back is nil.

At this point, the market isn't near reacting to ideas that have been floated. For us, what this does show is the beginning of the transition from the market focusing on vague Republican ideas like lower taxation and less regulation to a focus on the details and consequences. In other words, a transition from hope to reality that will unfold in H1 2017. We don't expect a smooth ride.

In the short-term, CAD lagged alongside oil as US inventories grew more than forecast. The lone US data point was existing home sales and they were strong at 5.61m compared to 5.50m expected. There is good potential in US housing in 2017 as the scars from the crisis fade and lenders get freed up from regulations.

One spot where housing prices remain sky high is New Zealand. At the moment, the weak NZD is giving foreign buyers a discount. NZD/USD has fallen for seven consecutive days and even GDP at +1.1% compared to +0.8% expected in Q3 hardly moved up the currency. That's partly because Q2 was downgraded to +0.7% from +0.9%. There is minimal nearby technical support on the NZD/USD chart.