US Dollar: Rally seen stretched into year-end – TD Securities

TD Securities' TD Macro Research Insight suggests that the US Dollar rally is nearing its limit against major currencies and unlikely to reach new highs during the ongoing Fed hiking cycle. Factors contributing to this bearish outlook include month-end equity rebalancing flows, weaker-than-expected U.S. payrolls, and a significant short position in G10 FX markets versus the USD. Additional risks may arise from a potential U.S. diesel export ban and geopolitical tensions.

The FX-adjusted global equity index returns, as analyzed by TD Securities, indicate a 1.0-1.5 z-score rebalancing flow out of the USD and into the EUR, GBP, and CAD. The company's September U.S. payrolls forecast predicts weaker-than-consensus data for both the unemployment rate and headline job growth. To witness the USD breaking out to a new high in the current Fed tightening cycle, the Federal Reserve would need to outpace global central banks, similar to the 2022 scenario, or witness a decline in the broader rate of growth in the rest of the world ahead of the U.S.