IC Markets – Asia Fundamental Forecast | 08 July 2026

IC Markets – Asia Fundamental Forecast | 08 July 2026

What happened in the U.S. session?

A weaker-than-expected U.S. trade balance report, and positioning ahead of the release of the Federal Reserve’s June meeting minutes. The U.S. trade deficit widened sharply to $77.6 billion in May from $54.6 billion previously, largely reflecting record imports of capital goods linked to continued AI investment demand. Meanwhile, escalating tensions in the Strait of Hormuz, following attacks on commercial vessels, pushed crude oil prices higher and lifted Treasury yields as investors reassessed inflation risks from potentially higher energy costs.

What does it mean for the Asia Session?

Continued repricing of U.S. interest-rate expectations after last week’s weaker U.S. labor market data has kept pressure on the U.S. dollar while supporting gold and broader risk assets. Markets will also be watching the release of the FOMC meeting minutes later in the global trading day for further insight into the Federal Reserve’s policy outlook under Chair Kevin Warsh, making the Asian session relatively cautious ahead of that event. The Japanese yen remains in focus as USD/JPY trades near levels that have previously attracted concerns over potential official intervention, while traders will also monitor any developments from China that could influence regional sentiment and commodity demand.
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The Dollar Index (DXY)

Key news events today

FOMC Meeting Minutes (6:00 pm GMT)

What can we expect from DXY today?

The U.S. dollar is trading with a firm tone as investors continue to favor the greenback amid heightened geopolitical tensions in the Middle East and expectations that the Federal Reserve will maintain a relatively hawkish policy stance. Safe-haven demand has increased following renewed concerns around shipping disruptions near the Strait of Hormuz, pushing Treasury yields and the U.S. Dollar Index (DXY) modestly higher. Market participants are also positioning ahead of the release of the Federal Reserve’s June meeting minutes, looking for clues on whether policymakers remain inclined toward another rate hike later this year.

Central Bank Notes:

• The Federal Open Market Committee (FOMC) left the federal funds rate unchanged at 3.50%–3.75% at its June 16–17, 2026, meeting, marking another pause in the policy cycle. Under new Fed Chair Kevin Warsh, policymakers signaled a more cautious and hawkish stance as inflation remains above target despite moderating energy prices.
• The Committee remains committed to achieving maximum employment and returning inflation to its 2% objective. Labor market conditions have remained relatively stable, with job gains continuing at a moderate pace and the unemployment rate projected to remain near 4.4% through 2026.
• Inflation continues to be the primary concern for policymakers. Headline inflation remains elevated, supported by earlier energy-related price pressures and persistent services inflation. The June projections showed higher inflation forecasts than previously expected, leading several officials to favor keeping policy restrictive for longer.
• Economic activity continues to expand at a moderate pace. Productivity growth, capital investment, and AI-related spending remain supportive of growth, while consumer spending and housing activity show signs of slowing compared with late 2025 and early 2026.
• The June 2026 Summary of Economic Projections (SEP) revealed a more divided Committee. Nine officials projected at least one rate hike during 2026, while others expected rates to remain unchanged or eventually decline. The median outlook shifted toward a higher-for-longer policy path compared with earlier projections.
• The Committee emphasized a data-dependent approach and noted that future decisions will depend on incoming inflation, employment, and economic growth data. Officials acknowledged that geopolitical developments and energy markets remain important upside risks to inflation.
• The FOMC continues its balance sheet normalization program, maintaining Treasury runoff caps at $5 billion per month and agency mortgage-backed securities (MBS) runoff caps at $35 billion per month, while ensuring ample reserves remain in the banking system.
• The next meeting is scheduled for 28 to 29 July 2026.

Next 24 Hours Bias

Weak Bearish

Gold (XAU)

Key news events today

FOMC Meeting Minutes (6:00 pm GMT)

What can we expect from Gold today?

Gold prices are trading cautiously at the start of Wednesday, as investors balance rising geopolitical risks against expectations for U.S. monetary policy. Spot gold eased from its recent two-week high, with traders taking profits ahead of the release of the U.S. Federal Reserve’s June meeting minutes, which could provide fresh clues on the outlook for interest rates. Although escalating tensions in the Middle East, particularly around the Strait of Hormuz, continue to support safe-haven demand, higher oil prices have also reinforced inflation concerns, increasing the possibility that the Fed could keep interest rates elevated for longer.

Next 24 Hours Bias
Strong Bullish

The Australian Dollar (AUD)

Key news events today

No major news event

What can we expect from AUD today?

The Australian dollar traded with a modest firmness, as investors continued to assess the hawkish undertone from the recent minutes of the Reserve Bank of Australia and awaited further guidance from the release of the U.S. Federal Reserve’s June meeting minutes later today. Markets remain divided over the RBA’s next policy move, with policymakers having left the door open to additional tightening should inflation remain persistent, even as recent data point to moderating economic momentum.

Central Bank Notes:

• The Reserve Bank of Australia kept its cash rate unchanged at 4.35% at the 6–7 July 2026 meeting, maintaining a restrictive policy stance as the Board continued to evaluate whether prior tightening is sufficiently containing inflation.
• Policymakers maintained a hawkish-neutral tone, reiterating that inflation is still not sustainably within the 2–3% target band and that it is premature to consider policy easing given lingering domestic price pressures.
• Recent inflation data showed continued moderation in headline CPI, but underlying inflation remained sticky, particularly in services, housing costs, insurance premiums, and administrative prices, reinforcing concerns that disinflation is uneven.
• Labour market conditions remained tight but gradually softening, with employment growth slowing from earlier highs while unemployment edged slightly higher, though wage growth is still elevated enough to sustain inflation risks in labour-intensive sectors.
• Household consumption showed early signs of stabilisation, supported by real income recovery and tax-related relief measures, but discretionary spending remained uneven, suggesting that demand is cooling without collapsing.
• External conditions remained mixed, with elevated global energy price volatility and geopolitical risks supporting upside inflation risks, while softer demand from key trading partners—especially China—continued to weigh on Australian export momentum.
• Financial markets now broadly expect the RBA to hold rates at 4.35% through the third quarter, with the probability of further tightening slightly reduced but still present if services inflation or wage data re-accelerate.
• The July statement emphasized a continued “data-dependent and patient” approach, signaling that policy will remain restrictive for longer if inflation proves persistent, while avoiding any commitment to near-term easing despite slower growth signals.
• The next meeting is on 4 to 5 August 2026.

Next 24 Hours Bias

Weak Bullish

The Kiwi Dollar (NZD)

Key news events today

Official Cash Rate (2:00 am GMT)

RBNZ Rate Statement (2:00 am GMT)

RBNZ Press Conference (2:00 am GMT)

What can we expect from NZD today?

The New Zealand dollar (NZD) is trading cautiously on Wednesday, 8 July 2026, with markets almost entirely focused on the Reserve Bank of New Zealand (RBNZ) monetary policy decision due later today. Most economists expect the RBNZ to either raise the Official Cash Rate by 25 basis points to 2.50% or deliver a hawkish hold, although opinions remain divided as falling oil prices have eased inflation concerns while domestic inflation remains above target.

Central Bank Notes:

• The Reserve Bank of New Zealand’s Monetary Policy Committee (MPC) held the Official Cash Rate (OCR) steady at 2.25% at its 27 May 2026 Monetary Policy Statement, but the decision was unprecedented—a 3-3 split requiring Governor Anna Breman’s casting vote. Three members (Hansen, Gourley, Gai) voted for an immediate 25bp hike to 2.50%, while three (Breman, Silk, Conway) voted to hold.
• While the OCR remained unchanged, the RBNZ issued its most hawkish guidance since the cutting cycle ended, stating the OCR will “likely need to rise sooner and by more than previously envisioned.” Market pricing now indicates a 72–73% probability of a rate hike at the next meeting on 8 July 2026, with swaps pricing in roughly 16bps of tightening.
• Annual CPI inflation remained at 3.1% in Q1 2026 (above the 1–3% target band) for two consecutive quarters. The RBNZ now forecasts inflation to peak at 4.3% in the September 2026 quarter—driven by Middle East oil shocks—before returning to the 2% target midpoint by mid-2027.
• The RBNZ revised its terminal OCR forecast upward to 3.28% over the next three years (from 3.0%), implying approximately 100 basis points of total tightening ahead. The updated path suggests at least two additional hikes by year-end 2026, with the OCR potentially rising to 2.50% by September 2026 and higher thereafter.
• GDP growth is projected at 0% in Q2 2026 and only 0.2% quarter-on-quarter in Q3, reflecting an early but unconvincing recovery. Unemployment, currently at 5.3% (near a decade-high), is expected to peak at 5.4% and remain there until June 2027.
• Retail sales volume rose 0.9% in Q1 2026, and electronic card data showed 2.7% annual growth in March, but high-frequency data reveals shrinking budget room as wholesale interest rates climb. Mortgage holders are increasingly shifting to two-year fixed rates for repayment certainty despite the OCR hold.
• Stronger dairy and meat export revenues (meat exports up 7% to $13.2B FY2026) and a softer NZD (TWI ~68%) support the external balance, while Middle East oil volatility poses upside inflation risks. The NZD jumped 0.7% against the USD immediately after the announcement, and two-year swap rates rose 3bps.
• Markets now expect the first hike in this tightening cycle, with the MPC’s internal division suggesting any future decision may again be contentious. Policy remains below the ~3% neutral rate, but the shift from “wait-and-see” to “preemptive tightening” is now clear.
• The next meeting is on 8 July 2026.

Next 24 Hours Bias

Weak Bearish

The Japanese Yen (JPY)

Key news events today

No major news event

What can we expect from JPY today?

The Japanese yen remains under pressure as markets balance the prospect of further Bank of Japan (BOJ) policy tightening against persistent U.S.-Japan interest-rate differentials. USD/JPY continues to trade near multi-decade highs after the dollar found renewed support, while traders remain highly alert for possible Japanese currency intervention if volatility accelerates. Recent comments from BOJ board member Toichiro Asada highlighted that additional rate hikes will depend on sustainable, demand-driven inflation and stronger wage growth rather than temporary price pressures, reinforcing expectations of a cautious normalization path.

Central Bank Notes:

• The Policy Board of the Bank of Japan maintained the short-term policy rate at 0.75% at the 15–16 June 2026 meeting, in line with market expectations, while reiterating a cautious and data-dependent approach to further policy normalization amid mixed domestic and external conditions.
• The BOJ continues to target the uncollateralized overnight call rate around 0.75%, with policymakers signaling that any move toward 1.0% will depend on sustained wage growth, inflation durability above target, stable financial conditions, and limited downside risks to growth rather than a fixed tightening schedule.
• JGB purchase tapering remains on track, with monthly bond buying continuing to moderate under the previously announced framework. The BOJ maintains flexibility to intervene or temporarily adjust purchase operations if sharp volatility emerges in the Japanese government bond market or if excessive yen fluctuations threaten financial stability.
• Japan’s economy shows moderate but uneven growth heading into mid-2026, supported by resilient domestic demand, corporate investment, and recovering external activity, although weaker global manufacturing momentum and geopolitical tensions continue to weigh on the export outlook.
• Core CPI (excluding fresh food) remains near the mid-1% y/y range, while underlying inflation indicators, including core-core measures and services inflation, continue to hover around or above 2%, supported by stronger wage dynamics and pass-through effects from prior cost increases.
• Domestic inflation pressures remain supported by 2026 Shunto wage settlements near 5%, labor shortages, and firm services pricing. However, easing import costs and stabilizing commodity prices are helping moderate headline inflation, while risks persist from renewed energy volatility and yen depreciation.
• Near-term real GDP growth may remain below trend, reflecting the lagged impact of tighter financial conditions and external uncertainty, but rising household incomes, accommodative real rates, and fiscal support measures are expected to gradually support consumption and business investment.
• Over the medium term, the BOJ continues to expect that labor-market tightness, wage growth, and structural productivity improvements will help sustain inflation around the 2% target, leaving room for a gradual move toward 1.0% policy rates into late-2026 or 2027, provided inflation and economic momentum remain aligned.
• The next meeting is on 30 to 31 July 2026.

Next 24 Hours Bias

Weak Bearish

Oil

Key news events today

EIA Crude Oil Inventories (2:30 pm GMT)

What can we expect from Oil today?

Oil prices are beginning Wednesday’s Asia trading session with heightened volatility as traders balance renewed geopolitical risks against growing expectations of a global supply surplus. Crude found support after reported attacks on commercial vessels near the Strait of Hormuz reignited concerns over disruptions to one of the world’s most critical energy shipping routes, briefly lifting both Brent and WTI prices. However, upside momentum remains limited as major Gulf producers continue restoring exports, OPEC+ production increases are adding barrels to the market, and analysts expect supply to outpace demand during the second half of 2026.

Next 24 Hours Bias
Weak Bearish