USD: Tactical strength, structural decline – TD Securities

TD Securities’ FX team, led by Jayati Bharadwaj, sees the US Dollar tactically supported as a safe haven on Iran-related geopolitical risks and strong US data, with USD expected to stay bid versus EUR, AUD and crowded G10 shorts. However, they maintain a structural bearish Dollar view into 2026, projecting BBDXY to grind lower and favouring selling USD rallies.

Safe haven bid versus 2026 downtrend

"Tactically, as we enter next week, market attention can go back to geopolitics and US data as the aftershocks of the IEEPA ruling take time to be figured out. The USD is behaving like a safe haven again with uncertainty in Iran and the risk of targeted strikes building up. We expect USD to remain bid vs EUR, AUD and parts of G10 where positioning is crowded."

"Looking at our high-frequency fair value model (HFFV), and proprietary positioning index, we find that market sentiment is bearish the USD. You could see a technical bounce in the USD if geopolitical tensions start to heat up, or Q1 US data seasonality strength pushes back some expectations of Fed cuts further. This can offer better levels to sell the USD for more structural reasons."

"Structurally, our bias remains to sell into USD rallies at a time when positioning does not look stretched in the short USD trade especially vs G10 pairs. In EM we like selective carry plays in BRL, ZAR and see value in CLP, KRW, TWD and CNY."

"We continue to forecast a structural decline in the USD in 2026, driven by US convergence to global growth and rates and waning safe-haven appeal. The list of risk events in the US is long which will keep investors hesitant about owning the USD exposure of their US equity holdings."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)