IC Markets – Asia Fundamental Forecast | 21 July 2026

IC Markets – Asia Fundamental Forecast | 21 July 2026

What happened in the U.S. session?

Escalating tensions in the Middle East continued to dominate sentiment, with concerns over potential disruptions to global oil supplies pushing crude prices higher. The rise in energy prices reinforced fears that inflation could remain elevated, prompting investors to reassess the outlook for U.S. interest rates. As a result, U.S. Treasury yields moved higher while the U.S. dollar remained firm on both safe-haven demand and expectations that the Federal Reserve may need to keep policy restrictive for longer. Gold traded in a relatively tight range, with safe-haven demand offset by the headwind of higher yields and a stronger dollar.

What does it mean for the Asia Session?

Traders should remain focused on the continued fallout from elevated energy prices, China’s policy outlook, and a busy week of global macroeconomic events. The People’s Bank of China kept its key lending rates unchanged on Monday, reinforcing a cautious stance toward supporting economic growth, while markets continue to monitor whether additional stimulus measures will follow. Meanwhile, persistent geopolitical tensions in the Middle East are keeping crude oil prices elevated, maintaining inflation concerns across Asia and supporting safe-haven demand.
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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 enters Tuesday with a modestly firm tone as investors continue to favor safe-haven assets amid heightened geopolitical tensions in the Middle East. While last week’s softer U.S. inflation data reduced expectations of an immediate Federal Reserve rate hike, elevated Treasury yields, resilient U.S. economic conditions, and persistent inflation concerns linked to higher energy prices continue to underpin the greenback. 

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

Medium Bullish

Gold (XAU)

Key news events today

No major news event

What can we expect from Gold today?

Gold is trading cautiously after ending Monday little changed, as investors continue to balance safe-haven demand from ongoing geopolitical tensions against expectations that the U.S. Federal Reserve may keep interest rates higher for longer. Escalating developments involving the U.S., Iran, and regional shipping risks have helped underpin demand for bullion, but stronger U.S. Treasury yields and a firmer U.S. dollar have capped upside momentum.

Next 24 Hours Bias
Medium Bearish

The Australian Dollar (AUD)

Key news events today

No major news event

What can we expect from AUD today?

The Australian dollar (AUD) begins trading with mixed momentum as markets balance supportive domestic fundamentals against stronger demand for the U.S. dollar driven by heightened geopolitical tensions. The Aussie has recently been supported by resilient Chinese economic data, Australia’s largest export market, and expectations that the Reserve Bank of Australia (RBA) will keep policy relatively restrictive as inflation risks remain elevated.

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.
• 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

No major news event

What can we expect from NZD today?

The New Zealand dollar (NZD) is beginning Tuesday on a firm footing after last week’s hawkish Reserve Bank of New Zealand (RBNZ) rate hike and guidance that further policy tightening may be needed if inflation remains elevated. Markets continue to price additional OCR increases over the coming year, keeping New Zealand bond yields supported and making the Kiwi one of the stronger-performing G10 currencies.

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?

The Japanese yen remains under pressure at the start of Tuesday’s Asian session after weakening toward multi-decade lows against the U.S. dollar. The primary drivers continue to be the wide interest rate differential between Japan and the United States, stronger demand for the U.S. dollar amid heightened geopolitical tensions in the Middle East, and market caution ahead of Japan’s national CPI inflation data due later this week. Investors are also closely watching the Bank of Japan’s next policy meeting, with expectations that any further policy tightening will depend on whether inflation remains persistent.

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

Medium Bearish

Oil

Key news events today

API Crude Oil Stock (8:30 pm GMT)

What can we expect from Oil today?

Oil remains driven primarily by geopolitical developments heading into Tuesday. Brent crude continues to trade near recent highs after briefly moving above the $90 per barrel level, while WTI remains elevated despite some profit-taking. The market is balancing two opposing forces: persistent concerns over supply disruptions caused by escalating U.S.-Iran tensions, Houthi threats to shipping routes in the Red Sea, and reduced tanker traffic through the Strait of Hormuz, against reports of renewed diplomatic efforts and a proposed temporary ceasefire that have eased some immediate fears.

Next 24 Hours Bias
Strong Bullish