As the primary foreign exchange advisor to City National’s Technology Banking division, I get a front row seat to see how geopolitics, macroeconomics and banking come together. We recently got a reminder of how important the international landscape is to our clients’ business.

No one can hear the news about Apple’s dealings with the EU tax authorities, and see the sheer numbers involved, without realizing how important the rest of the world is to the U.S. tech sector and why having international strategies in place is so important.

In the second quarter of this year, the average S&P 500 company earned 31 percent of its revenue from sources outside of the U.S. For the tech industry that number is 59 percent – nearly double the S&P 500 average.

Honestly that is not really surprising, due to its international production cycle and the heavy demand for technology from all over the world. But if we assume that fact will persist in the coming years, it makes the art of currency forecasting even more important for tech companies than for many other firms. 

City National Foreign Exchange has released its latest three- and six-month forecasts, with our continued expectations that the U.S. dollar will appreciate in value into the end of the year. As is usually the case, relative interest-rate differentials and the market expectations for those differentials are the primary drivers of currency values.

In Continental Europe, the U.K. and Japan, monetary yields are extremely low and often negative. In the U.S., Federal Reserve Chair Janet Yellen’s Jackson Hole speech last week put new life into the possibility of a Fed rate hike this year. Our colleagues at City National Rochdale expect the rate hike to occur in December.

My View: If this trend continues, add a stronger dollar to the list of issues that tech companies will need to seriously address.

The information in this report was compiled by the staff at City National Bank from data and sources believed to be reliable but City National Bank makes no representation as to the accuracy or completeness of the information. The opinions expressed, together with any estimate or projection given, constitute the judgment of the author as of the date of the report. City National Bank has no obligation to update, modify or amend this report or to otherwise notify a reader in the event any information stated, opinion expressed, matter discussed, estimate or projection changes or is determined to be inaccurate. This report is intended to be a source of general information. It is not to be construed as an offer, or solicitation of an offer, to buy or sell any financial instrument. It should not be relied upon as specific investment advice directed to the reader’s specific investment objectives. Any financial instrument discussed in this report may not be suitable for the reader. Each reader must make his or her own investment decision, using an independent advisor if prudent, based on his or her own investment objective and financial situation. Prices and availability of financial instruments are subject to change without notice. Financial instruments denominated in a foreign currency are subject to exchange rate risk in addition to the risk of the investment. City National Bank (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this report and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.