TD Securities expects the US Dollar to stay supported in the near term due to Iran-related geopolitical risk and strong US data. It expects the USD to remain bid versus the EUR, AUD and 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 aftershocks from an IEEPA ruling may take time to be resolved, keeping attention on geopolitics and US data.
Near Term Dollar Support
Its high-frequency fair value model (HFFV) and positioning index indicate market sentiment is bearish on the USD. It says the USD could bounce if tensions rise or if Q1 US data seasonality reduces expectations for Federal Reserve cuts.
For the medium to longer term, TD Securities maintains a bearish USD view into 2026 and forecasts BBDXY to grind lower. It prefers selling USD rallies and cites expected US convergence towards global growth and rates, along with reduced safe-haven appeal.
In emerging markets, it refers to selective carry trades in BRL and ZAR, and value in CLP, KRW, TWD and CNY.
2026-02-26T14:46:50.056Z
Medium Term Strategy
In the immediate weeks, we see the US dollar being supported by ongoing geopolitical uncertainty in Iran and strong domestic data. The latest Non-Farm Payrolls figure for January 2026, which came in above expectations at +215,000, suggests the Fed may delay rate cuts. This environment supports short-term bullish strategies, such as buying near-term call options on the dollar index (DXY) or put options on the Euro and Australian dollar.
Market positioning appears to be heavily short the US dollar, creating the potential for a technical bounce as these positions are unwound. We saw a similar dynamic in the third quarter of 2025 when speculators were caught offside by unexpectedly resilient US growth figures, forcing a rapid surge in the dollar. For derivative traders, this means any outright bearish positions on the dollar carry significant short-term risk of a squeeze.
However, this anticipated strength should be viewed as a selling opportunity for longer-term plays. The underlying trend for the dollar through 2026 remains bearish, so this rally offers a more attractive entry point for structural short positions. Consider selling out-of-the-money USD call options with expirations in the later half of the year or gradually building into longer-dated put options.
The fundamental reason for the dollar’s expected decline is the narrowing gap between US and global economic performance. For example, recent PMI data from the Eurozone has shown marked improvement, while US inflation continues to cool, last reported at a 2.4% annual rate. As other central banks catch up to the Federal Reserve’s policy stance, the dollar’s yield advantage will erode.
Away from the major currencies, opportunities exist in select emerging markets where high interest rates offer attractive carry. With Brazil’s central bank holding its Selic rate at 9.5% last month, the yield differential remains compelling for carry trades. Derivative traders can use currency forwards to lock in favorable exchange rates or options to structure plays that benefit from the high yields in currencies like the Brazilian Real or South African Rand.
