USD strengthens versus commodity currencies, DXY remains within a range – Scotiabank

US Dollar Shows Modest Strength Amid Mixed Market Signals

The US Dollar (USD) is displaying a generally firmer tone against most major currencies, although the DXY index is not showing significant gains as the euro, Swiss franc, and Japanese yen remain relatively stable, according to insights from Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret.

Fed’s Cautious Stance Restricts DXY Upside

More pronounced USD advances are evident versus currencies like the New Zealand dollar and Australian dollar. The Australian dollar has slipped lower, dragging the NZD with it, after comments from RBA Deputy Governor Hauser indicated the central bank is not in a hurry to tighten monetary policy. Meanwhile, recent moves by President Trump to limit hedge fund activity in the housing sector and push defense firms to increase capital expenditures have contributed to a softer tone in global equities. This risk-off sentiment is lending some support to the USD, while weighing on the Aussie and Kiwi dollars.

Despite these developments, government bond prices are mostly declining, suggesting that investor appetite for safe-haven assets remains limited. US economic data released yesterday painted a mixed picture, reinforcing a sense of caution for the dollar ahead of the upcoming payrolls report. The ADP employment figures fell short of expectations, the ISM Services index exceeded forecasts, and the JOLTS job openings headline was weaker than projected. While hiring remains sluggish, layoffs are also not accelerating.

Earlier this week, Federal Reserve Governor Miran stated that more than 100 basis points of rate cuts would be necessary this year. It is unlikely that the latest ISM data will alter his dovish outlook. Currently, swaps are factoring in 59 basis points of rate reductions for the year, with only 11 basis points of easing anticipated through March. From a technical perspective, the DXY appears constrained below the upper 98 level. The USD could become more susceptible to shifts in market expectations that would prompt a reassessment of Fed policy toward more aggressive easing.