"Taking a step back, the market feels like it may have entered auto-pilot mode," notes Mazen Issa, Senior FX Strategist at TD Securities.
Key quotes
"COVID relief has passed, the Fed has signalled that it is far too soon to alter policy and an infrastructure deal looks only weeks — if not months — away. This suggests major FX directional bets are probably limited near-term until fresh catalysts surface."
"Against this backdrop, seasonal dynamics may take on added significance. After a solid Q1 performance, the USD registered a weak April. This keeps with the seasonal dynamics for that month. For May, seasonal trends favor broad-based USD strength. This coincides with US relative equity outperformance over the global MSCI (ex. US) benchmark."
"The exception, however, comes in years following a US presidential election. In this case, performance favors a softer USD but more modest US relative equity gains. By extension, this has also seen more selective performance across FX. In those years, the dollar bloc has led gains in the FX complex, albeit at a more measured pace and even after a strong April. Within that, this tends to be CAD driven. That could feature prominently in crosses where CB divergences are most acute"