Synopsis:
TD Securities views the recent calm in USD markets as a tactical reset, not a turning point. Despite noisy trade deal headlines, core structural drivers—like U.S. stagflation risk and deteriorating global confidence in the dollar—persist. TD continues to target a >5% drop in the USD Broad Index (BDXY) into year-end but prefers to wait for better entry points to reinitiate short USD positions.
Key Points:
-
April recap: The month was marked by extreme volatility following “Liberation Day,” a major shift in U.S. trade policy, with Asian currencies rebounding and U.S. policy credibility tested.
-
Trade deals = noise, not signal: TD sees recent trade announcements as more performative than substantive. Tariffs on China remain elevated, keeping the overall U.S. stance economically restrictive and inflationary.
-
Tactical USD bounce likely: With TD’s USD sentiment index at cyclical lows and markets digesting data rather than headlines, the bank expects a temporary dollar rebound, creating better shorting opportunities.
-
Positioning strategy: TD is not abandoning its bearish dollar view—only pausing tactically. They remain confident in a structural decline in the USD, especially if incoming data surprises to the downside.
Conclusion:
TD is staying patient, looking for a short-term bounce in the dollar to fade into, rather than chasing weakness at current stretched levels. The medium-term USD bear case remains intact, with trade policy, inflation risks, and shifting global flows as core drivers.
