TD Research discusses the USD outlook and adopts a sell-on-rallies bias going into Q2.
"As we continue to note, higher rates that validate a rise in global growth expectations won't invite the USD's exceptionalism 2.0 regime. The result is something new, likely something that most haven't seen before, especially given the lasting impact that the pandemic may have on consumers, business, and policy," TD notes.
"For the USD, the upshot is more variation under the hood, favoring currencies with growth, value, carry, and positive terms of trade. We discuss these drivers along with the recent central bank shifts. Notably, a backtest of our Global Macro PCA-based USD signal argues to fade extremes, suggesting selling into USD rallies in Q2," TD adds.