DXY daily
TD Securities maintains its bearish outlook for the
USD, suggesting that the currency’s recent free fall, following a
positive inflation report, marks the beginning of a broader downward
trend expected for the second half of 2023 and most of 2024.
Key Points
-
Advocating USD shorts: TD has been advocating for
USD shorts since the positioning-induced rally in May. The bank believes
the recent price action is the start of a broader bearish trend in the
second half of 2023. -
Medium-term drivers: TD assesses several medium-term
drivers, including global growth and yield curve dynamics, front-end
rate momentum and relative central bank policy, and volatility and
valuation mechanics. These drivers largely lean against the USD,
supporting TD’s updated outlook that the USD has much room to fall
through the second half of 2023 and even through most of 2024. -
Unwinding of global recession hedges: TD suggests
that the recent outperformance of G10 currencies relative to EM
currencies likely rests in the unwinding of legacy global recession
hedges. -
China’s data and EM carry trades: China’s upcoming
data release will also draw attention, where positive data could
reinforce the outperformance of Asia/EM equities. TD likes KRW longs
versus CNH and USD, sees renewed life in EM carry trades, and still
prefers long JPY exposure as USDJPY remains rich to fair value. -
CADNOK downside: The break of the 200-day moving average opens up more CADNOK downside.
Summary
TD Securities maintains a bearish stance on the USD, viewing the
recent fall as the onset of a broader negative trend extending into
2024. The bank identifies several medium-term drivers that lean against
the USD, reinforcing its projection. Furthermore, TD highlights the
unwinding of global recession hedges and China’s data release as key
elements to watch.
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