The US Dollar (USD) is experiencing a mixed backdrop, with dovish Federal Reserve (Fed) repricing capping its rebounds, even as foreign demand for US assets remains robust. According to Brown Brothers Harriman’s Elias Haddad, TIC data show that foreign investors accumulated $1778bn of long-term US securities in the twelve months to June, with a record $920bn in US equities and $294bn in Treasuries, outpacing the -$743bn US trade deficit over the same period [1]. Despite concerns that the dollar could be vulnerable to an equity market correction, Haddad argues that a sell-off would likely prompt a rotation into safe-haven Treasuries, supporting the dollar’s defensive appeal [1].
Meanwhile, MUFG’s Halpenny notes that EUR/USD remains capped near its 200-day moving average at 1.1630 and is 2.5%-3.0% overvalued in the bank’s short-term model. He warns that energy-driven growth risks and broader inflation pressures could weaken yield support for the Euro, potentially leading to underperformance. The US Dollar Index (DXY) remains supported above the 200-day moving average level of 99.185, and a break below this could add momentum to dollar weakness. The ZEW Expectations index is highlighted as a potential signal for downside risks to the Euro in the coming months [2].
In the AUD/USD market, the Australian Dollar trades almost flat at around 0.7100 against the US Dollar, near its two-month high of 0.7130 posted on Monday. The pair remains firm as the US Dollar is under pressure, with financial markets pricing out the possibility of a Fed interest rate hike in September. HSBC Asset Management notes that market pricing for a September Fed rate hike has fallen to its lowest level since mid-June, and TD Securities expects the Fed to remain on hold over their forecast horizon, citing stabilized labor markets and persistent inflation [3]. The US Dollar Index (DXY) trades marginally higher near 99.65 after rebounding from a two-month low of 99.30 [3].
Technical analysis for AUD/USD shows the pair trading at 0.7103, above the 20-day EMA at 0.7043, with buyers in control and the Relative Strength Index (14) at 64.6 indicating firm positive momentum. Immediate support is at 0.7080, and a break above 0.7130 could extend gains toward the May 29 high at 0.7200. Investors are awaiting Australian employment data for July, expected to show 15K jobs created, down from 73.6K in June, with the unemployment rate seen steady at 4.4% [3].
CONCLUSION
The US Dollar remains supported by strong foreign demand and safe-haven flows, even as dovish Fed repricing limits its upside. Market sentiment is cautious, with technical resistance levels holding for both EUR/USD and AUD/USD, and analysts expecting the Fed to stay on hold amid softer US data. Investors are closely watching upcoming economic releases for further direction.