US Dollar: Hawkish Fed underpins resilience – TD Securities

1.43 is the likely retest level for USD/CAD, according to TD Securities’ FX team. Led by Jayati Bharadwaj and Howard Du, the team expects the US Dollar to hold firm as Fed rate expectations increase. Stronger US data and higher yields underpin its outlook, with EUR/USD facing further declines towards sub-1.10 as the Fed out-hikes other major central banks.

Rising US yields underpin Dollar

"FX: The USD will likely stay resilient until peak Fed hawkishness. USDCAD could retest year-to-date high at 1.43 in the near-term. Breakout below 1.11 in EURUSD likely opened the door for more downside."

"The USD will likely remain resilient until Fed hawkishness peaks. The USD's efficacy as an equity risk-off haven asset has evidently declined, as shown by the falling correlation between the US dollar and US equity. However, rising US yields should still provide upward momentum for the USD, particularly if the market believes the Fed can out-hike other major central banks in the coming months."

"In G10, USDCAD will likely retest the year-to-date high at 1.43 as weak data in Canada weighs on near-term BoC rate hike likelihood relative to the Fed. We also closed our EURUSD risk reversal position as the prospect for more spot downside toward sub-1.10 range has increased."

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