IC Markets – Asia Fundamental Forecast | 18 August 2026

IC Markets – Asia Fundamental Forecast | 18 August 2026

What happened in the U.S. session?

The U.S. session was driven by a combination of stronger-than-expected manufacturing data, fading expectations for a September Fed hike, elevated Treasury yields and continuing U.S.–Iran tensions. The stronger Empire State reading gave the dollar and yields some temporary support, but the broader market narrative remained USD-negative because recent U.S. retail-sales, employment and inflation data have weakened the case for further Fed tightening. Consequently, gold maintained a bullish bias, oil remained elevated and volatile, while U.S. equities traded mixed as investors balanced strong corporate/AI optimism against higher yields and geopolitical risks.

What does it mean for the Asia Session?

Asian traders should primarily monitor USD/JPY and the yen for BOJ/intervention risk, Chinese markets and the yuan following disappointing economic data, and AUD/USD as the Aussie benefits from a weaker dollar and RBA expectations. Gold could remain supported if the dollar continues weakening, while oil may remain volatile because of geopolitical developments. The biggest scheduled event later in the day is the UK labour-market data, which could create additional volatility in GBP pairs.
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The Dollar Index (DXY)

Key news events today

No major news event

What can we expect from DXY today?

The U.S. dollar is starting Tuesday under pressure, after weaker-than-expected U.S. economic data reduced expectations for another Federal Reserve rate hike. The dollar fell to around a 10-week low, while markets cut the probability of a September Fed hike to roughly 30–31%, from about 55% a week earlier.

Recent retail sales weakness, softer employment indicators and subdued inflation have encouraged traders to price a less hawkish Fed outlook. The 10-year Treasury yield has also eased to around 4.68%, while the 2-year yield is near 4.16%, reinforcing the pressure on the dollar.

Central Bank Notes:

• The Federal Open Market Committee (FOMC) kept the federal funds rate unchanged at 3.50%–3.75% at its July 28–29, 2026, meeting, marking the fifth consecutive meeting without a policy change. The Committee voted 9–3 to maintain rates, with three members dissenting in favor of a 25-basis-point rate hike, highlighting growing concern among some policymakers that inflation remains too high.
• The Committee reaffirmed its dual mandate of maximum employment and price stability. Officials noted that the labor market remains resilient, with job gains broadly keeping pace with labor force growth and the unemployment rate remaining relatively stable. The FOMC continues to view employment conditions as consistent with a healthy economy while remaining vigilant for signs of labor market weakening.
• Inflation remains the Committee’s primary concern. While some recent inflation data have shown moderation, overall price pressures remain above the Fed’s 2% target. Policymakers emphasized that elevated inflation continues to be driven in part by higher energy prices and persistent supply-side pressures, leading the Committee to maintain a restrictive monetary policy stance.
• Economic activity continues to expand at a solid pace despite elevated uncertainty. Strong productivity growth, business investment, and continued spending related to artificial intelligence remain supportive of economic growth. However, the FOMC acknowledged that geopolitical tensions, particularly developments affecting global energy markets, continue to pose risks to both inflation and the broader economic outlook.
• The July meeting highlighted increasing divisions within the Committee. Three policymakers—Beth Hammack, Neel Kashkari, and Lorie Logan—voted against the majority, preferring an immediate rate increase. This unusually large number of dissents reflects growing concern among some officials that inflation could remain persistent and may require additional policy tightening if progress stalls.
• Chair Kevin Warsh reiterated that future policy decisions will remain strictly data-dependent. He avoided providing explicit forward guidance, emphasizing that upcoming decisions will depend on incoming inflation, employment, and growth data. Warsh also stressed that the Committee remains fully committed to returning inflation to its 2% objective and is prepared to act if inflationary pressures intensify.
• The FOMC continues its balance sheet normalization program without changes. The Federal Reserve will maintain Treasury runoff caps at $5 billion per month and agency mortgage-backed securities (MBS) runoff caps at $35 billion per month, while continuing to ensure ample reserves remain available within the banking system.
• The next meeting is scheduled for 15 to 16 September 2026.

Next 24 Hours Bias

Weak Bearish

Gold (XAU)

Key news events today

No major news event

What can we expect from Gold today?

Gold is entering Tuesday with a bullish bias, after rising sharply on Monday as a weaker U.S. dollar and falling expectations for a Federal Reserve rate hike boosted demand for the non-yielding metal. Spot gold climbed to around $4,426 per ounce, while markets now see only about a 30–33% probability of a September Fed rate hike, down considerably from previous expectations. 

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?

A hawkish RBA, elevated inflation and a softer U.S. dollar are providing support, while stronger Chinese activity and commodity demand would add further upside potential. However, traders should watch U.S. dollar movements, China-related developments and upcoming Australian employment/wage data, as these could determine whether the Aussie can extend its recent rally.

Central Bank Notes:

• The Reserve Bank of Australia (RBA) is expected to maintain a cautious, data-dependent policy stance heading into its September 2026 Monetary Policy Meeting. The Cash Rate Target remains at 4.35%, following three increases earlier in 2026. The RBA has indicated that monetary policy needs to remain sufficiently restrictive to bring inflation back toward the 2–3% target while allowing the Board to assess the effects of previous tightening on household demand, employment and economic activity.
• Inflation remains the central issue for the September meeting, although headline price pressures have continued to moderate. Australia’s CPI rose 3.8% year-on-year in June 2026, down from 4.0% in May, while trimmed-mean inflation remained at 3.6%. This suggests that underlying inflation is proving more persistent than headline inflation and remains above the RBA’s 2–3% target band. Housing costs continue to be an important source of inflationary pressure, while the end of some electricity rebates has also contributed significantly to household costs.
• The August and September inflation data will be particularly important for determining the RBA’s next move. The ABS is scheduled to release July 2026 CPI on 26 August, giving policymakers a fresh inflation reading before the September meeting. The data will help determine whether the recent moderation in headline inflation is becoming more broad-based or whether services and domestic cost pressures remain stubborn.
• The labour market remains relatively resilient, but there are early signs of moderation. Australia’s unemployment rate was 4.4% in June, while employment increased by approximately 76,300 people and the participation rate rose to 67.0%. The increase in employment provides the RBA with room to keep policy restrictive, although rising unemployment or a significant decline in employment growth could strengthen the case for eventually easing monetary policy.
• Wage growth will remain an important indicator for the September decision. The latest available Wage Price Index showed wages increasing 0.8% quarter-on-quarter and 3.3% year-on-year in the March quarter. The June-quarter wage data is scheduled for release on 19 August 2026, meaning the RBA will have this information available before its September meeting. A stronger-than-expected wage result could reinforce concerns about persistent domestic inflation, while softer wage growth would support the argument that inflation is gradually returning toward target.
• Household demand and economic growth will remain closely monitored. Higher borrowing costs continue to place pressure on mortgage holders and discretionary household spending. At the same time, improving real incomes and easing headline inflation could gradually support consumption later in the year. The RBA will therefore need to balance the risk of keeping rates restrictive for too long against the risk of easing policy before underlying inflation has been sufficiently contained.
• Global economic and commodity-market conditions remain an important risk for Australia. Developments in energy prices, geopolitical tensions and China’s economic performance could have significant implications for Australia’s inflation and export outlook. A renewed increase in energy prices could raise Australia’s inflation outlook, while weaker Chinese demand could weigh on commodity exports, business activity and overall economic growth..
• Financial markets are likely to remain highly sensitive to incoming inflation and employment data. With the cash rate already at 4.35%, markets will closely assess whether the RBA is approaching the end of its tightening cycle or whether another increase could become necessary. A sustained decline in underlying inflation and weaker domestic demand would strengthen expectations for eventual rate cuts, while persistent services inflation, strong wages or renewed energy-price pressures could keep the possibility of another hike alive.
  
  
• The next meeting is on 28 to 29 September 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 (NZD) is entering Tuesday with a mildly bullish backdrop, supported by expectations that the Reserve Bank of New Zealand (RBNZ) could raise interest rates again at its September meeting. The RBNZ lifted the Official Cash Rate to 2.50% in July, and recent market pricing has continued to reflect expectations of further tightening. However, the latest RBNZ Survey of Expectations showed one-year inflation expectations falling sharply from 3.41% to 2.60%, while two-year expectations declined from 2.53% to 2.34%. This has reduced some expectations for an aggressive tightening cycle and could limit NZD upside.

Central Bank Notes:

• The Reserve Bank of New Zealand’s Monetary Policy Committee (MPC) raised the Official Cash Rate (OCR) by 25 basis points to 2.50% at its 8 July 2026 Monetary Policy Review, marking the first rate increase of the current tightening cycle. Unlike the split decision in May, the Committee reached a consensus that reducing monetary stimulus was appropriate to return inflation to target.
• Although global oil prices have fallen following the partial reopening of the Strait of Hormuz, the RBNZ warned that inflation remains above its 1–3% target range and that lingering energy-related cost pressures continue to pose upside risks. The Bank reiterated that further OCR increases are likely, although the timing will remain dependent on incoming economic data.
• The RBNZ now expects headline inflation to have peaked at 3.9% in Q2 2026, lower than the 4.3% peak projected in May, reflecting weaker oil prices. Inflation is forecast to ease to around 3.3% in Q3 2026 before gradually returning to the 2% midpoint by mid-2027, while underlying domestic inflation remains persistent.
• The Committee judged that the current OCR remains accommodative, even after the July increase, and stated that additional tightening will probably be required over coming meetings. Policymakers emphasized that future decisions will depend on inflation expectations, firms’ pricing behaviour, labour market conditions, and the pace of economic recovery rather than following a predetermined path.
• Economic activity slowed during the June quarter as higher energy costs temporarily weighed on demand, but the RBNZ expects the recovery to resume in the September quarter. The Bank’s Kiwi-GDP nowcasting model projects 0.6% quarterly GDP growth in Q3 2026, supported by improving business confidence, lower fuel prices, and stronger household purchasing power as inflation moderates.
• Domestic demand remains uneven, with tourism, agriculture, and export industries continuing to outperform, while discretionary retail spending, construction, and housing activity remain subdued. The RBNZ believes spare capacity in the economy should limit widespread pass-through of higher business costs into consumer prices, although this remains an important upside inflation risk.
• Financial conditions have eased since the May meeting as wholesale interest rates declined, and the New Zealand dollar depreciated, helping exporters but potentially adding to imported inflation. The Committee noted that shorter-term mortgage rates had increased earlier in the year, while longer-term borrowing costs have begun to stabilize alongside lower market interest-rate expectations.
• The MPC concluded that maintaining price stability remains its primary objective, stressing that while further rate increases are expected, policy will remain data-dependent. The Committee believes returning inflation to the 2% midpoint is essential to achieving a sustainable recovery in employment, household incomes, and long-term economic growth.
• The next meeting is on 2 September 2026.

Next 24 Hours Bias

Medium Bullish

The Japanese Yen (JPY)

Key news events today

No major news event

What can we expect from JPY today?

Weak Japanese growth is a headwind, but expectations of further BOJ tightening, elevated JGB yields, and the possibility of additional FX intervention are providing support. Meanwhile, softer U.S. economic data has reduced expectations for further Federal Reserve tightening, which could narrow the U.S.–Japan rate differential and further benefit the yen. USD/JPY around 160 remains the key area to watch; a sustained break below 159 could strengthen the yen, while a move back above 160 would increase intervention concerns.

Central Bank Notes:

• The Bank of Japan (BOJ) maintained the short-term policy rate at 1.00% at its 30–31 July 2026 Monetary Policy Meeting. The decision reflected confidence that Japan’s economy continues to recover moderately, while policymakers judged that further tightening should proceed gradually as they assess incoming data and the sustainability of inflation.
• The BOJ continues to guide the uncollateralized overnight call rate at around 1.00%, emphasizing that future policy adjustments will remain data-dependent. The Bank reiterated that any additional rate increases will depend on sustained wage growth, inflation remaining durably around or above the 2% target, stable financial markets, and resilient domestic demand rather than following a predetermined path.
• The Bank will continue reducing its purchases of Japanese Government Bonds (JGBs) in line with its previously announced tapering plan while maintaining flexibility to conduct market operations if excessive volatility threatens financial stability. Policymakers also remain attentive to sharp movements in the yen and their potential impact on inflation and financial conditions.
• Japan’s economy continues to expand at a moderate pace, supported by firm domestic consumption, strong corporate investment, improving labor market conditions, and recovering global demand. However, uncertainty surrounding global trade, geopolitical developments, and external manufacturing activity continues to pose downside risks to the growth outlook.
• Underlying inflation continues to strengthen. While headline inflation has moderated somewhat due to easing energy prices, core inflation remains above the BOJ’s 2% objective, supported by broad-based services inflation, rising labor costs, and stronger pricing behavior among firms. The BOJ now sees upside risks to medium-term inflation from persistent wage growth and structural price-setting changes.
• Domestic inflationary pressures remain supported by robust wage settlements, persistent labor shortages, and continued pass-through of higher labor costs into services prices. At the same time, policymakers are closely monitoring the effects of yen depreciation, which could accelerate imported inflation if sustained, even as lower commodity and energy prices provide some offset.
• The BOJ expects real GDP growth to remain moderate over the near term as accommodative financial conditions, rising household incomes, and business investment continue to support activity. Nevertheless, policymakers acknowledge that tighter global financial conditions, weaker external demand, and geopolitical uncertainty could temporarily restrain growth.
• Looking ahead, the BOJ maintains that if inflation continues to stabilize around its 2% objective alongside sustained wage gains and economic expansion, further gradual policy normalization remains appropriate. Financial markets generally expect another 25-basis-point rate increase later in 2026, although the timing will depend on incoming economic and inflation data.
• The next meeting is on 17 to 18 September 2026.

Next 24 Hours Bias

Weak Bullish

Oil

Key news events today

API Crude Oil Stock (8:30 pm GMT) 

What can we expect from Oil today?

Oil prices are entering Tuesday with strong geopolitical support but mixed fundamental signals. On Monday, Brent crude was around $88.58 per barrel, while WTI was near $82.22, as markets remained focused on the stalled U.S.–Iran negotiations and disruptions to shipping through the Strait of Hormuz. Only a handful of vessels have recently transited the waterway, keeping a significant risk premium in crude prices because Hormuz normally handles roughly 20% of global oil and LNG supplies.

Next 24 Hours Bias
Medium Bullish