Dollar Defies Expectations with Monday Rally Despite Falling Yields

The US dollar index (DXY) defied expectations by rallying on Monday despite falling long-end Treasury yields and weakness in energy prices.

A report suggested that the Treasury could tap the Treasury General Account (TGA) to fund increased buybacks of long-dated securities, which would avoid issuing shorter-dated bills. This move ignores the underlying reasons for higher long-term yields, including persistent strength in energy prices and massive US budget deficits.

The lack of implementation date for the broader Iran sanctions also contributed to the dollar's resilience. Secretary Scott Bessent said that countries must cut business ties with Iran or risk being shut out of the US dollar-based financial system, but stopped short of identifying who would be targeted and when the sanctions would take effect.

The AUD/USD pair reversed its gains after reaching fresh multi-month highs due to the dollar's strength. The RBA minutes are expected to show a hawkish tone, with markets pricing only around a 4% chance of a September hike in interest rates.