IC Markets – Asia Fundamental Forecast | 22 May 2026
What happened in the U.S. session?
Overnight U.S. trading saw a mix of softer labor signals from higher jobless claims and firmer regional manufacturing data, while geopolitical anxieties around the Middle East lifted oil and energy stocks; the net effect was a renewed Treasury selloff (higher yields), a firmer dollar, stronger crude prices, and a rotation within equities from long-duration tech into energy and cyclical names as investors rebalanced around growth, rates, and commodity risk.
What does it mean for the Asia Session?
Japan’s April CPI could shift expectations for the Bank of Japan and trigger a quick move in USD/JPY. Beyond that, oil remains the main cross-asset risk, since Reuters reports renewed Iran tensions have pushed crude higher and kept global markets on edge, while elevated U.S. yields continue to pressure sentiment and support the dollar. In practice, that means the morning session could be driven by a mix of Japan data, yen volatility, and any fresh headlines on oil or geopolitics.
The Dollar Index (DXY)
Key news events today
Revised UoM Consumer Sentiment (2:00 pm GMT)
What can we expect from DXY today?
The dollar is broadly firmer today, with recent coverage pointing to gains driven by rising U.S. Treasury yields and growing bets that the Federal Reserve may need to keep interest rates higher for longer. Reuters also noted that the dollar had been on track for its strongest weekly rise in more than two months, while the yen stayed weak and the yuan eased as the greenback strengthened across major pairs.
Central Bank Notes:
- The Federal Open Market Committee (FOMC) is widely expected to hold the federal funds rate target range steady at 3.50%–3.75% at its April 28–29, 2026, meeting, as oil prices remain elevated around $108 per barrel for Brent crude amid ongoing US-Israel tensions with Iran, alongside surging inflation from energy shocks, further delaying any 2026 rate cuts potentially beyond September.
- The Committee continues to pursue maximum employment and 2% inflation goals, with the labor market showing mixed signals as nonfarm payrolls rose by 178,000 in March 2026—beating lowered expectations but driven partly by strike reversals—and the unemployment rate edged down to 4.3% from 4.4% in February.
- Officials face heightened risks from geopolitical tensions, soaring oil prices, and accelerating inflation, with CPI jumping to 3.3% year-over-year in March 2026 from 2.4% in February due to a 10.9% monthly energy surge, headline PCE pressured higher, and core PCE estimates around 3.1% or more.
- Economic activity continues to cool after robust Q4 2025 growth near 5%, with the Atlanta Fed GDPNow estimating Q1 2026 growth at 1.3% amid softer consumer spending, strike impacts, and labor data despite some resilience.
- March 2026’s Summary of Economic Projections forecasts 2026 unemployment at a median around 4.4%, GDP growth revised higher, and core PCE up to 2.7%, with the dot plot still signaling one cut in 2026 to a median 3.25%–3.50% funds rate amid softer labor but inflation upticks.
- The Committee maintains its data-dependent stance amid a mixed labor market, inflation well above target from oil shocks, and geopolitical risks, likely holding rates at 3.50%-3.75% with persistent divisions and hawkish tones on cuts.
- The FOMC continues its adjusted quantitative tightening, with Treasury rolloff caps at $5 billion per month and agency MBS at $35 billion per month to manage reserves amid post-2025 balance sheet adjustments.
- The next meeting is scheduled for 16 to 17 June 2026.
Next 24 Hours Bias
Medium Bullish
Gold (XAU)
Key news events today
Revised UoM Consumer Sentiment (2:00 pm GMT)
What can we expect from Gold today?
Gold is trading in a narrow, slightly softer band around mid‑$4,500s per ounce on Friday, as earlier safe‑haven strength from Middle‑East tensions and softer yields meets a steadier dollar and cautious positioning ahead of the weekend. Underlying demand remains solid, with strong investment and central‑bank buying supporting the metal’s long‑term bull case, even as short‑term charts highlight vulnerability below recent support levels should risk‑on sentiment or yields pick up.
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?
Expect the AUD to trade with sensitivity to RBA guidance, U.S. dollar moves and commodity prices; near-term direction will likely reflect the latest U.S. data and risk sentiment (equities/EM moves), plus any fresh commentary from the Reserve Bank of Australia or Australian economic releases such as business confidence or retail spending a stronger risk tone and firmer iron‑ore/oil prices would support the AUD, while stronger U.S. data or a firmer USD would cap gains.
Central Bank Notes:
- The Reserve Bank of Australia (RBA) raised its cash rate by 25 basis points to 4.35% at the 5 May 2026 meeting, moving into a more restrictive stance as inflation pressures re‑accelerated and the board judged the previous 4.10% level insufficient to re‑anchor the medium‑term outlook.
- The RBA lifted the cash rate from 4.10% to 4.35% at the 5 May meeting in an 8–1 vote, flagging that the stance is now “more restrictive” and that the Council sees a low but non‑trivial chance of further hikes if inflation risks crystallise.
- Headline CPI has jumped to 4.6% year‑on‑year for the 12 months to March 2026, up from around 3.7% in February, with trimmed‑mean inflation still above 3.0% (about 3.3–3.8% depending on the series), keeping inflation clearly outside the 2–3% target band.
- Recent monthly indicators remain sticky in services, housing‑related costs, and discretionary spending, with January and March data showing only modest easing and some upside surprises in housing‑price‑related components, underpinning the case for a stronger‑than‑expected May hike.
- Global growth has been modestly revised up but remains tempered by ongoing geopolitical tensions, commodity‑price volatility, and elevated oil prices linked to the Middle East conflict, which directly feed into Australian import‑price and transport‑cost inflation.
- Markets now price the cash rate at 4.35% in June, with futures pathways suggesting a high‑probability hold at the June meeting and only a modest chance of another 25bp hike later in 2026, contingent on further upside in CPI or services‑price data.
- The RBA continues to emphasise its “data‑dependent” approach under the dual mandate, seeking to bring inflation back toward target without materially undershooting growth or employment, while acknowledging that the Middle East‑driven shock has shifted the path of inflation and policy.
- The May communication leaned hawkishly neutral to hawkish, with the decision to hike by 25bp and a run‑of‑material referencing rising inflation expectations and the risk of second‑round effects, while still leaving room for a pause in June if upcoming monthly CPI and labour‑force data show a moderating trend.
- The next meeting is on 15 to 16 June 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 is trading flat‑to‑slightly weaker on Friday, with NZD/USD hovering around 0.586–0.588 after a recent retreat from near‑0.59 territory; the kiwi is being tugged between resilient risk‑on sentiment and stronger‑than‑expected Chinese data on one side, and firmer US yields, elevated oil prices, and a cautious RBNZ policy stance on the other, leaving the pair range‑bound and vulnerable to sharp shifts in global risk appetite.
Central Bank Notes:
- The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) is widely expected to hold the Official Cash Rate (OCR) steady at 2.25% at its 8 April 2026 Monetary Policy Review, aligning with unanimous market consensus from Reuters polls and previews.
- The MPC continues its data-dependent “wait-and-see” approach after February’s pause, balancing stimulus from prior 325-basis-point cuts against inflation’s path back to the 2% target, with readiness for gradual normalization only if the recovery strengthens or inflation exceeds forecasts.
- Headline CPI, last at 3.1%, is on track to re-enter the 1-3% band in Q2 2026 and hit 2% by mid-2027, aided by spare capacity, moderating wages, and softer food/fuel prices; two-year business inflation expectations have ticked up slightly to 2.37%.
- Household spending and housing remain subdued amid cautious consumption, low net migration, and labor market softness, though easing retail rates support budgets; high-frequency GDP indicators show steadying momentum in an early recovery phase.
- Accommodative borrowing costs from the low OCR are boosting mortgage approvals and sentiment, but business credit growth lags due to uneven confidence; overall stimulus persists below the 3% neutral rate.
- Risks are balanced, with a favorable global environment—including stronger dairy/meat exports and a softer NZ dollar—offsetting oil shocks and prior China/US trade worries; vigilance remains on second-round inflation effects.
- Forecasts point to potential OCR hikes starting late 2026 (e.g., December) or early 2027 to 2.50% by year-end if activity/inflation firms, but policy stays supportive if recovery unfolds gradually as expected.
- The next meeting is on 27 May 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 yen is starting Friday, on a firmer but still volatile footing, with market attention centered on suspected Japanese intervention and official warnings after a sharp jump in the currency in late April and early May. Traders are watching USD/JPY closely around the 155–160 zone, where recent moves have suggested authorities may step in again if weakness becomes excessive.
Central Bank Notes:
- The Policy Board of the Bank of Japan left the short‑term policy rate unchanged at 0.75% at the 27–28 April 2026 meeting, with markets broadly expecting the same level into May 2026 as the bank continues a data‑dependent, gradual‑normalisation stance.
- The BOJ targets the uncollateralized overnight call rate around 0.75%, signaling that any further hikes toward 1.0% will hinge on wage‑inflation persistence, yen stability, and real‑activity data rather than a pre‑announced timetable.
- JGB tapering continues on plan, with outright purchases trimmed by ¥400 billion quarterly through Q1 2026, then reduced to ¥200 billion from April onward, aiming for roughly ¥2–3 trillion in monthly net purchases by mid‑2026, adjustable if market or yen volatility spikes.
- Japan’s economy posts moderate growth into Q1 2026, supported by resilient exports and prior stimulus, but the BOJ has downgraded its 2026 growth outlook as external headwinds and Middle‑East‑related shocks weigh on the pace.
- Core CPI (ex‑fresh food) is running in the mid‑1% range y/y, with headline inflation at about 1.5% y/y in March 2026, while core‑core measures remain above 2%, reflecting sticky services‑side and wage‑driven inflation.
- Input‑cost pressures ease from prior peaks, yet services inflation, the 2026 shunto wage deals near 5%, and expectations anchored above 2% support continued price pressures, with upside risks from further yen weakness and geopolitical spikes.
- Near‑term real GDP may run below trend due to policy tightening and external shocks (e.g., Iran‑related energy risks), but negative real rates, wage gains, and targeted fiscal/capex support should underpin a gradual rebound in consumption and investment.
- Medium‑term, overseas recovery, labor‑shortage‑driven wage growth, and productivity improvements are expected to keep core inflation near or above 2%, enabling the BOJ to gradually lift rates toward 1.0% in 2026–2027 if activity and wage‑inflation conditions remain aligned.
- The next meeting is on 15 to 16 June 2026.
Next 24 Hours Bias
Strong Bearish
Oil
Key news events today
No major news event
What can we expect from Oil today?
Oil prices are trading lower; a massive recent rally fueled by Middle‑Eastern supply disruptions and Strait‑of‑Hormuz tensions has unwound somewhat, with Brent around the mid‑90s and WTI near the high‑80s to low‑90‑dollar range. Easing concerns over prolonged Gulf blockages and a temporary normalization of flows are reducing the risk premium, while still‑tight US inventories and firm Asian demand are preventing a deeper sell‑off, leaving the market in a volatile, range‑bound phase with the broader 2026 outlook still tilted higher than pre‑conflict levels but gradually easing into 2027.
Next 24 Hours Bias
Medium Bullish
