IC Markets – Asia Fundamental Forecast | 22 December 2025
What happened in the U.S. session?
The latest U.S. session unfolded against a backdrop of solid but decelerating growth, with GDP and the near‑term data slate reinforcing a soft‑landing narrative and no fresh hawkish shock from the Fed. U.S. equity futures and cash indices stayed supported but not euphoric, with growth and AI‑linked names still carrying broader risk sentiment, while Treasuries traded sideways as decent activity data offset expectations for 2026 rate cuts. The dollar was range‑bound as traders awaited further confirmation from labor and inflation prints, leaving gold underpinned as a hedge and crude oil driven more by supply and geopolitical factors than by the latest macro releases.
What does it mean for the Asia Session?
Asian traders will be watching a light but important macro day centered on China’s loan prime rate decision, Hong Kong’s inflation and current account data, and the start of a week dominated by the People’s Bank of China and Western holiday‑thinned liquidity. The backdrop is an Asia still growing faster than the rest of the world, but navigating mixed momentum in Southeast Asia and a gradually tightening global financial environment.
The Dollar Index (DXY)
Key news events today
No major news event
What can we expect from DXY today?
Going into Monday, the Dollar is in a softening but stabilising phase: the DXY is parked just below 99, and broader Fed trade‑weighted gauges sit several percent below their 2024 peaks, reflecting the impact of Fed rate cuts, easing US inflation, and diminished yield support for the currency. With year‑end holidays thinning liquidity, this week’s Dollar trading is likely to feature choppy, headline‑driven moves around a gently weaker trend rather than a strong directional surge, as markets watch incoming Fed and data updates for confirmation that the easing cycle will continue in 2026.
Central Bank Notes:
- The Federal Open Market Committee (FOMC) is widely expected to lower the federal funds rate target range by 25 basis points to 3.50%–3.75% at its December 9–10, 2025, meeting, marking the third consecutive cut after the October reduction to 3.75%–4.00%
- The Committee continues to pursue maximum employment and 2% inflation goals, with the labor market showing further softening as the unemployment rate rose to 4.4% in September 2025 amid modest job gains.
- Officials note persistent downside risks to growth alongside resilient activity, with inflation easing to 3.0% year-over-year CPI in September but remaining elevated due to tariff effects; core PCE stands at around 2.8% as of October.
- Economic activity grew at a 3.8% annualized pace in Q2 2025 per revised estimates, though Q3 and Q4 face headwinds from trade tensions, fiscal restraint, and data disruptions like the government shutdown.
- September’s Summary of Economic Projections forecasts 2025 unemployment at a median 4.5%, with PCE inflation near 3.0% and core PCE at 3.1%, signaling a gradual disinflation path; updates expected on December 10 may adjust for higher unemployment and lower growth.
- The Committee maintained its data-dependent approach, noting a softening labor market and inflation above the 2% target, while deciding to lower the federal funds rate target range by 25 basis points to 3.50%-3.75%. Dissent persisted, with multiple members opposing the cut or advocating for a hold, reflecting divisions similar to recent meetings.
- The FOMC confirmed the conclusion of its quantitative tightening program effective December 1, 2025, with Treasury rolloff caps at $5 billion per month and agency MBS caps at $35 billion per month to ensure ample reserves and market stability.
- The next meeting is scheduled for 27 to 28 January 2026.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
No major news event
What can we expect from Gold today?
Going into Monday, gold remains one of the strongest major assets, consolidating just above 4,300 USD/oz and near record territory as traders navigate a seasonally thin, year‑end market. The metal’s resilience is being driven by a combination of softer U.S. inflation, earlier Fed rate cuts, and ongoing demand for safety and diversification, even as debate continues over how much further policy will ease in 2026.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
No major news event
What can we expect from AUD today?
The Australian Dollar starts the week of Monday, trading slightly weaker but broadly range‑bound around the mid‑0.66 level against the US dollar, having given back part of its recent climb from below 0.66 as risk sentiment softened. Technical analyses describe a market caught between modest corrective upside and a still‑intact medium‑term downtrend, with resistance clustered near 0.6685–0.6750 and downside risk towards the low‑0.64s if rebounds fail.
Central Bank Notes:
- The Reserve Bank of Australia held its cash rate steady at 3.60% at the November 2025 policy meeting, adopting a cautious tone amid a surprise uptick in inflation data for the September quarter. This marks the fourth consecutive pause since the 25 basis point cut in August. The Board attributed some of the inflation rise to temporary factors like higher petrol prices and council rates, but noted signs of more persistent pressures from consumer demand.
- Policymakers emphasized vigilance on inflation, with trimmed mean inflation expected to remain elevated in the near term before nearing the 2–3% target midpoint by mid-2027. Recent data showed underlying inflation staying above target until at least the second half of 2026, prompting upward revisions to forecasts. Capacity pressures are seen as slightly more pronounced than previously assessed, delaying any easing.
- Headline CPI for the September quarter exceeded expectations, driven partly by temporary items, while underlying measures signal ongoing stickiness. The shift to monthly CPI reporting, with the first full edition in November 2025, will enhance real-time inflation monitoring. Housing and services remain resilient contributors to price pressures.
- Domestic demand shows firmness in services alongside below-trend growth elsewhere, with capacity pressures not expected to ease significantly. The labor market is gradually softening, with unemployment projected to stabilize around 4.4%, though wage growth and productivity dynamics keep unit labor costs a concern. Household spending faces headwinds from high borrowing costs.
- Global risks include geopolitical tensions and commodity volatility, set against modestly revised-up world growth outlooks. The Board describes its policy as mildly restrictive and data-dependent, balancing inflation control with employment goals. No rate hike was considered despite the inflation surprise.
- Monetary policy remains mildly restrictive to address lingering price stability risks amid household and global vulnerabilities. Communications reaffirm the dual mandate of 2–3% inflation and full employment, with readiness to adjust based on incoming data.
- Market expectations point to the cash rate holding through early 2026, with a possible modest cut to 3.3% mid-year if inflation eases as forecast. The new monthly CPI data will be key for timely insights.
- Monetary policy remains mildly restrictive, balancing progress on price stability against vulnerabilities in household demand and global outlook. Board communications reaffirm a dual mandate: price stability and full employment, while underscoring readiness to respond should risks materialize sharply.
- Analysts generally expect the cash rate to remain at current levels through early 2026, with only modest cuts possible later in the year if inflation moderates. The new monthly CPI release (first full edition Nov 2025) will be watched closely for timely signals on price trends.
- The next meeting is on 2 to 3 February 2026.
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news event
What can we expect from NZD today?
The New Zealand dollar starts the week of Monday on the back foot, trading around the mid‑0.57s against the US dollar after slipping from recent highs, with charts still pointing to a mild downtrend and resistance in the high‑0.58s. Stronger‑than‑expected Q3 GDP has not translated into sustained NZD strength because spare capacity and subdued inflation mean markets no longer expect additional RBNZ hikes, especially after Governor Anna Breman signaled rates are likely on hold through 2026.
Central Bank Notes:
- The Monetary Policy Committee (MPC) left the Official Cash Rate (OCR) unchanged at 2.25% at its 26 November 2025 meeting, following the widely anticipated 25-basis-point reduction from 2.50%, and signaled that policy is now firmly in stimulatory territory while keeping the option of further easing on the table if needed.
- The decision was again reached by consensus, with members judging that the cumulative 325 basis points of easing over the past year warranted a period of assessment, even as several emphasized a willingness to cut further should incoming data point to a more protracted downturn or renewed disinflationary pressures.
- Headline consumer price inflation is projected to hover near 3% in late 2025 before gradually easing toward the 2% midpoint of the 1–3% target band through 2026, supported by contained inflation expectations around 2.3% over the two-year horizon and an expected pickup in spare capacity.
- The MPC noted that domestic demand remains subdued but shows tentative signs of stabilisation, with softer household spending and construction only partially offset by improving services activity; nevertheless, policymakers still expect services inflation to ease as wage growth moderates and the labour market loosens further over the coming year.
- Financial conditions continue to ease as wholesale and retail borrowing rates reprice to the lower OCR, contributing to gradually rising mortgage approvals and improving housing-related sentiment, although broader business credit growth remains patchy and sensitive to uncertainty about the durability of the recovery.
- Recent data confirm that GDP momentum is weak but not deteriorating as sharply as earlier in 2025, with high-frequency indicators pointing to a shallow recovery from a low base and ongoing headwinds from elevated living costs and fragile confidence weighing on discretionary consumption and investment.
- The MPC reiterated that external risks remain skewed to the downside, particularly from softer Chinese demand and uncertainty around United States trade policy, but noted that a lower New Zealand dollar continues to provide some offset via improved export competitiveness and support for tradables inflation.
- Looking ahead to early 2026, the Committee maintained a mild easing bias, indicating that a further cut toward 2.00–2.10% cannot be ruled out if activity fails to gain traction or if inflation undershoots projections, but current forecasts envisage the OCR remaining near 2.25% for an extended period provided inflation converges toward target and the recovery proceeds broadly as expected.
- The next meeting is on 18 February 2026.
Next 24 Hours Bias
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news event
What can we expect from JPY today?
The Japanese yen is starting the week still on the back foot, trading around the mid‑150s per dollar as markets absorb the Bank of Japan’s latest rate increase to 0.75%, its highest policy rate in roughly three decades. The move has not produced lasting currency strength because traders doubt how aggressively the BoJ will tighten from here and remain focused on Japan’s deteriorating fiscal outlook under Prime Minister Takaichi’s expansive spending agenda.
Central Bank Notes:
- The Policy Board of the Bank of Japan will meet on 18–19 December with markets almost fully pricing a 25-basis-point hike, which would raise the short-term policy rate from 0.50% to around 0.75%, as the bank moves further away from its ultra-loose stance while stressing that any tightening will remain gradual and data-dependent.
- The BOJ is expected to continue guiding the uncollateralized overnight call rate in a narrow band around the new policy rate, near 0.75%, while signaling that the pace and timing of any additional hikes will depend on how past increases affect bank lending, corporate financing conditions, and overall economic activity.
- The quarterly path of JGB purchases remains on a pre-announced, gradual taper: outright purchases are being reduced by about ¥400 billion per quarter through March 2026, then by roughly ¥200 billion per quarter from April to June 2026, with the bank still aiming for JGB purchases to settle near ¥2 trillion in Q1 2027 and retaining flexibility to adjust the pace if market functioning or yield volatility deteriorate.
- Japan’s economy has softened in the near term, with Q3 2025 GDP contracting at an annualized pace of about 2.3% as weaker residential investment and external demand weighed on activity, even as business sentiment in manufacturing has recently improved to a roughly four-year high.
- Core consumer inflation (excluding fresh food) accelerated to around 3.0% year-on-year in October, up from 2.9% in September and remaining above the BOJ’s 2% target, while the “core-core” measure excluding both fresh food and energy rose to about 3.1%, underscoring persistent underlying price pressures.
- In the very near term, some input-cost pressures are easing as earlier import price surges fade, but services inflation linked to labor shortages, along with steady wage gains, continues to support broader price momentum; firms’ and households’ medium-term inflation expectations remain anchored slightly above 2%, keeping short-term inflation risks tilted to the upside.
- For the coming quarters, the BOJ assesses that real growth will likely run below potential as the economy digests tighter financial conditions and past yen depreciation, though accommodative real rates, positive real wage growth, and improving corporate sentiment should help sustain a modest recovery in private consumption and business investment.
- Over the medium term, as overseas demand stabilizes and domestic labor markets remain tight, the BOJ expects wage settlements and inflation expectations to keep core inflation on a gradual upward trajectory around or slightly above 2%, providing room for further cautious rate normalization as long as financial conditions remain supportive and the recovery is not derailed.
- The next meeting is scheduled for 22 to 23 January 2026.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news event
What can we expect from Oil today?
Oil starts Monday, with Brent hovering near 60 USD and WTI in the mid‑50s, recovering from recent multi‑year lows but still down roughly 18–20% over the past year as supply remains abundant. OPEC’s December report keeps its 2025–2026 demand growth projections steady around 1.3–1.4 million barrels per day, and OECD inventories, while somewhat below the pre‑pandemic five‑year average, are not tight enough to force a sustained rally.
Next 24 Hours Bias
Medium Bearish
