TD Bank anticipates a medium-term decline in the USD's value as we approach the end of the year, citing an expected rebalancing of the global economic scenario and evolving US curve dynamics. Their prediction leans towards a deceleration in the US economy into 2024 while the Rest of the World (ROW), supported notably by China, begins to stabilize. TD's trading strategy is influenced by a combination of terms of trade, relative carry, and expected market divergence, both within the G10 and emerging markets.
USD's Downward Trend: TD predicts a decline in the USD over the medium term, driven by changing global dynamics. They point towards a probable slowdown in the US economy as 2024 approaches, juxtaposed against stabilization in the global economy, with China playing a significant role in this stabilization.
Role of Terms of Trade and Relative Carry: Both these factors are expected to remain pivotal, further accentuating the divergence within G10 nations and between emerging markets.
Trading Preferences: TD recommends specific trading positions in light of their analysis:
- Short CHFMXN (Swiss Franc - Mexican Peso): This is likely based on expectations around the comparative monetary policies and economic outlooks between Switzerland and Mexico.
- Short GBPNZD (British Pound - New Zealand Dollar): With the UK facing various challenges, including Brexit ramifications, and New Zealand's economic resilience, this position could offer profitable returns.
- Short USDBRL (US Dollar - Brazilian Real): The Brazilian economy, along with the broader Latin American region, might see positive momentum, suggesting a decline in the USD compared to the BRL.
TD Bank's trading strategy, as the year winds down, leans heavily on the anticipation of a depreciating USD amidst shifting economic dynamics globally. Their trading suggestions, based on an amalgamation of factors, reflect a comprehensive understanding of the global economic landscape and potential opportunities therein. Investors and traders alike should take these insights into account while formulating their strategies, considering their risk appetite and market outlook.