Dollar Defies Expectations, Rallying Despite Bearish Yields and Energy Prices

The US dollar (DXY) defied expectations and rallied on Monday despite falling long-end Treasury yields, energy prices weakness, and the lack of a worst-case scenario in the implementation of US sanctions on Iran.

The unusual move saw the Aussie dollar (AUD/USD) slip as it reversed from fresh multi-month highs. The pair now sits at an immediate range between 0.7130 and 0.7180.

Treasury General Account (TGA) funding could be used to fund expanded buybacks of long-dated securities, but this move is seen as a temporary fix and does not address the underlying issues driving long-end yields higher.

The DXY price action leading into Monday had already suggested a potential short-term squeeze. The RBA's August monetary policy minutes are due for release today, which may come across as more hawkish than current market pricing implies, with the board voting unanimously to keep the cash rate steady at 4.35%.