USD: Short-term resilience, long-term weakness – TD Securities

TD Securities: US Dollar Supported in Short Term, Long-Term Weakness Expected

The foreign exchange analysts at TD Securities, under the leadership of Jayati Bharadwaj, anticipate that the US Dollar will find short-term support as a safe haven due to ongoing geopolitical tensions involving Iran and robust US economic indicators. The team expects the greenback to outperform currencies such as the euro, Australian dollar, and other heavily shorted G10 currencies in the near term. Despite this, their broader outlook remains negative for the Dollar through 2026, with projections for the BBDXY index to gradually decline and a preference for selling into any USD rallies.

Short-Term Strength Amid Geopolitical Uncertainty

As the new week approaches, TD Securities notes that market focus is likely to return to geopolitical developments and US economic data, especially as the implications of the IEEPA ruling are still being digested. With rising uncertainty surrounding Iran and the potential for targeted military actions, the US Dollar is once again acting as a safe haven. The analysts expect the Dollar to remain in demand against the euro, Australian dollar, and other G10 currencies where short positions are prevalent.

According to their high-frequency fair value model and proprietary positioning index, market sentiment is currently negative on the Dollar. However, should geopolitical risks intensify or if strong first-quarter US data delays expectations for Federal Reserve rate cuts, the Dollar could experience a technical rebound. Such moves would present more attractive opportunities to sell the Dollar for those with a longer-term bearish view.

Medium-Term Outlook: Selling USD Rallies

From a structural perspective, TD Securities continues to advocate for selling into US Dollar rallies, particularly as short positions on the Dollar are not overly extended, especially against G10 currencies. In emerging markets, the team favors selective carry trades in the Brazilian real and South African rand, and sees potential value in the Chilean peso, South Korean won, New Taiwan dollar, and Chinese yuan.

Long-Term Forecast: Dollar Weakness into 2026

Looking further ahead, the analysts maintain their forecast for a sustained decline in the US Dollar through 2026. This outlook is based on expectations that US growth and interest rates will converge with global trends, diminishing the Dollar’s safe-haven appeal. Additionally, a lengthy list of domestic risk events in the US is likely to keep investors cautious about holding Dollar exposure, especially in relation to US equity investments.

(This article was produced with the assistance of artificial intelligence and reviewed by an editor.)