TD Securities expects the US dollar to stay supported in the near term, helped by Iran-related geopolitical risk and strong US data. It expects the USD to stay well bid versus the EUR, AUD, and other G10 currencies where short positions are crowded.
The firm says uncertainty around Iran, and the risk of targeted strikes, could keep demand for the USD as a safe haven. It also notes that fallout from an IEEPA ruling may take time to resolve, which keeps focus on geopolitics and US data.
Near Term Dollar Support
Its high-frequency fair value model (HFFV) and positioning index show that market sentiment is bearish on the USD. It says the USD could rebound if tensions rise, or if Q1 US data seasonality lowers expectations for Federal Reserve rate cuts.
Over the medium to longer term, TD Securities keeps a bearish USD view into 2026 and forecasts BBDXY to trend lower. It prefers selling USD rallies and points to expected US convergence toward global growth and interest rates, along with weaker safe-haven demand.
In emerging markets, it highlights selective carry trades in BRL and ZAR, and value in CLP, KRW, TWD, and CNY.
2026-02-26T14:46:50.056Z
Medium Term Strategy
Over the next few weeks, we expect the US dollar to stay supported by continued Iran-related uncertainty and strong US data. January 2026 Non-Farm Payrolls rose by +215,000, above expectations. This suggests the Fed may delay rate cuts. That backdrop favors short-term bullish trades, such as buying near-term call options on the dollar index (DXY), or buying put options on the euro and Australian dollar.
Positioning also looks heavily short USD. That raises the risk of a technical bounce as traders unwind those shorts. We saw a similar move in Q3 2025, when stronger-than-expected US growth caught speculators wrong-footed and pushed the dollar sharply higher. For derivatives traders, this means outright bearish USD trades carry a real short-term risk of a squeeze.
Even so, we view any near-term USD strength as a chance to sell for longer-term trades. The broader USD trend through 2026 remains bearish, so a rally may offer a better entry for structural short positions. One approach is to sell out-of-the-money USD call options expiring in the second half of the year, or to build positions gradually using longer-dated put options.
The main reason TD expects the dollar to weaken is a smaller gap between US and global growth. For example, recent eurozone PMI data has improved, while US inflation has cooled, most recently reported at a 2.4% annual rate. As other central banks move closer to the Fed’s policy stance, the dollar’s yield advantage should fade.
Outside major currencies, there are also opportunities in select emerging markets where high interest rates provide attractive carry. Brazil’s central bank held the Selic rate at 9.5% last month, keeping the yield differential appealing for carry trades. Derivatives traders can use currency forwards to lock in exchange rates, or options to build strategies that benefit from high yields in currencies like the Brazilian real or South African rand.
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