Sandy repair effort may see dollar rise

Wed Oct 31, 2012 7:53am EDT

-- Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own --

By Neal Kimberley

LONDON (Reuters) - "We take care of our own," wrote New Jersey's Bruce Springsteen and that sums up why the dollar could well rise as efforts to repair the damage caused by superstorm Sandy stimulate the U.S. economy.

With plentiful natural resources including shale gas and oil on tap, the U.S. economy is well placed to generate dollar-positive domestic growth as it repairs and rebuilds after the storm.

The dollar's course in the wake of Hurricane Katrina in 2005 is worth recalling.

Katrina made landfall on Aug 26 and in the next 72 hours caused enormous damage to New Orleans and across the southern United States. The dollar weakened.

As traders sold the greenback, the exchange rate against the euro rose from $1.2215 on August 29 to $1.2589 on September 2. The dollar fell from 110.69 yen on August 29 to 108.73 on September 5.

Then the picture changed as markets began to realise that rebuilding the Big Easy and the wider coastal areas would end up a net stimulus to the U.S. economy.

The dollar began to rally.

The euro fell from that September 2 high to $1.1638 on November 15. The dollar rose against the yen from that 108.73 level to above 121.00 on December 5.

Other factors were also in play during this period of dollar appreciation but an inference can arguably be drawn.

While the physical damage caused by Katrina was more pronounced than Sandy, this week's storm seems to have caused twice or even three times the losses of last year's Hurricane Irene.

AIR Worldwide, one of the three main companies used by the insurance industry to calculate disaster exposures, indicated that Sandy is likely to have caused insured losses of between a$7 billion to $15 billion.

That excludes residential flood losses and subway and tunnel flooding.

This repair and reconstruction should give the U.S. economy a broader lift and prove supportive for the dollar.

(Editing by Nigel Stephenson)

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