In This Article:
The US dollar (DX=F, DX-Y.NYB) is being set up for a possible rebound as Trump administration officials work to make trade deals and even ease tariff rates for American automakers.
TD Securities managing director and global head of foreign exchange (FX) and emerging markets (EM) strategy Mark McCormick comes on Catalysts to speak on the short-term drivers behind the US dollar amid trade and economic uncertainties.
Also catch Rabobank's Christian Lawrence explain to Yahoo Finance why, despite the currency's current weaknesses, investors are not "seeing the death of the dollar" quite yet.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
And talk to me then about what does drive the short term, given all of the uncertainty, given the lack of clarity on tariff policies, and then also, as of this morning, what's actually moving a lot of the tape is that economic data. It's not those headlines on tariffs. So, which of those two is going to drive the US dollar more?
It's a great question because I do think, again, we have to step back from what's happening, again, in the months and quarters ahead versus now. What's happening now is that when you look at positioning indicators, we've run a whole lot of models and a lot of different tools that tell us what's going on in the very short term, longer term, medium term. But our positioning and short-term valuation models are extremely short the US dollar. So we are like seeing a max discount being priced into the dollar. That means that a lot of bad news is priced in, and the market's got to continue to watch data. So whether or not Q1 GDP was good or bad is irrelevant because we know that the market positioned for short US dollar and short US equities in the first quarter. What matters is where things are going in the second quarter, whether or not what's priced in now matches the reality of what's coming through in the second quarter. And that's where we think the market's wrong. Um, this is where we think the dollar is going to consolidate. Um, again, we saw some data today that's a little bit better than expected. We think non-farm payrolls will be slightly better than expected. And what that's going to do is what I would say here is what's very critical to the workings of the FX market is that what's happened is that international investors, pension funds, sovereign wealth funds, private investors, all these institutional investors have been long US equities relative to other benchmarks. They have been forced out of those positions. I think most of this, again, in first quarter was mostly CTAs and really high frequency trading. Um, but what's happening is that as the US dollar declined with US equities, they were doubly exposed to these positions, which I think have forced a lot of different investors to increase their hedges, the things they're normally not hedged to, which compounded the losses in the dollar recently. So, if anything, we start to see the US equity market stabilize, that will help stabilize the correlations and conditions for the dollar, which would allow the positioning and the consolidation of some of the FX markets to work through for the next couple of weeks, maybe even say through the early part of Q2. Uh, if we do get this to work out where the market kind of readjusts its positioning and dollar positioning goes from very short to neutral, we are now in a position to start selling the dollar again, which is where we think the playbook is going to be in this in the second quarter for the second half of the year as well.