US Dollar: Resilient as Fed stays hawkish – TD Securities

TD Securities’ FX team, led by Jayati Bharadwaj and Howard Du, expects the US Dollar to remain firm as Fed rate expectations rise. They see the USD supported by stronger US data and higher yields, with USD/CAD likely retesting 1.43 and EUR/USD facing further downside toward sub-1.10 as the Fed out-hikes other major central banks.

Dollar supported by rising US yields

"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."