USD: Safe-haven debate and conflict premium – TD Securities

TD Securities strategists Jayati Bharadwaj and Linda Cheng argue the US Dollar can behave like a safe haven again due to the nature of the current shock, even if it is no longer an effortless one. They see near-term USD upside as risk premia in crude Oil stay elevated, but they maintain a bearish USD view for 2026 as US growth exceptionalism fades and safe-haven appeal diminishes.

Dollar benefits from risk and energy dynamics

"The USD is no longer an effortless haven, but the nature of the current shock allows it to behave like one again."

"Will a USD spike turn into a sustained rally? We see scope for a near-term USD positioning adjustment, but expect limits to escalation on both sides of the Iran conflict, particularly in a US midterm election year."

"USD upside should persist only while risk premia remain elevated in crude oil, potentially echoing the price action seen in June 2025 until a regime shift happens in Iran with US backing."

"Over longer term (5–10y), the conflict reinforces USD overvaluation through stronger US energy independence."

"That said, we are not yet changing our bearish USD view for 2026, given fading US growth exceptionalism, diminished safe-haven appeal, and the ongoing “Hedge America” trade, which may intensify after recent US actions."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)