Dollar at Risk: TD Securities Forecasts Weakness Amid Election Scenarios
The TD Securities macro team, led by Jayati Bharadwaj, Howard Du, and Linda Cheng, maintains a bearish view on the US Dollar despite a hawkish market reaction to Chair Warsh's Jackson Hole speech. The team argues that incoming US data should steer the Fed toward a September rate hold decision.
The TD Securities team believes that the broader USD trend will be weaker into year-end as US midterm election scenarios and macro fundamentals drive FX. They expect the dollar to trade moderately weaker to neutral on gridlock, but a 'Blue Wave' could lead to some material knee-jerk USD strength.
In their baseline forecast, TD Securities expects the USD to modestly weaken into year-end due to alleviating bullish USD pressures. However, they note that a 'Blue Wave' scenario could lead to more knee-jerk USD strength as the US regains institutional credibility and long-dated Treasury term premium falls.
The team also warns of a bearish scenario if Republicans maintain full Congress control, which would be the most bearish for the USD. They recommend owning lower USD/SEK in case of a divided Congress on seasonality, FX valuation, and 2018 analog; while owning USD/CNH in case of a 'Blue Wave' risk scenario.