IC – Asia Fundamental Forecast | 20 July 2026
What happened in the U.S. session?
Heightened geopolitical tensions in the Middle East, which continued to dominate sentiment ahead of a relatively quiet macroeconomic calendar. Renewed concerns over potential supply disruptions following additional U.S. military actions involving Iran supported crude oil prices, while investors also reassessed the outlook for global inflation and interest rates. At the same time, traders positioned cautiously ahead of a busy week that includes key inflation data from Canada and several major corporate earnings releases.
What does it mean for the Asia Session?
Asian markets are expected to begin Monday cautiously as traders position ahead of a busy global data calendar. The main focus during the session will be preparing for Canada’s inflation reports and New Zealand’s quarterly CPI later in the day, both of which could reshape expectations for their respective central banks. Meanwhile, steady Chinese policy expectations, persistent geopolitical risks, and firm oil prices are likely to keep commodity currencies supported and maintain a cautious risk environment as investors await the week’s key inflation and PMI releases.
The Dollar Index (DXY)
Key news events today
No major news event
What can we expect from DXY today?
The U.S. dollar begins Monday on a cautious footing after ending last week slightly lower. Softer U.S. inflation data has reduced expectations of an imminent Federal Reserve rate hike, weighing on the greenback. However, renewed geopolitical tensions in the Middle East have increased safe-haven demand for the dollar and supported oil prices, helping to limit further downside. Investors are now turning their attention to this week’s U.S. economic releases, including Flash PMI data, housing figures, and other leading indicators, as well as the Federal Reserve’s policy meeting later this month for clues on the future path of interest rates.
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 begins on a cautious footing after suffering its steepest weekly decline in over a month. The primary headwind remains expectations that the U.S. Federal Reserve could keep monetary policy restrictive or even raise interest rates further as persistent inflation risks linked to higher energy prices continue to support U.S. Treasury yields and the U.S. dollar. Although ongoing geopolitical tensions in the Middle East continue to provide some safe-haven demand, investors are placing greater emphasis on the outlook for U.S. inflation and interest rates, limiting gold’s upside.
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 begins Monday, with markets primarily focused on the Reserve Bank of Australia’s policy outlook, elevated energy prices, and global risk sentiment. The RBA kept its cash rate unchanged at 4.35% in June after three rate hikes earlier this year, but policymakers have maintained a hawkish bias as inflation remains above target. Recent Australian data has shown business conditions holding steady and business confidence improving, although renewed tensions in the Middle East have pushed oil prices higher again, increasing the risk of imported inflation.
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
CPI q/q (10:45 pm GMT)
What can we expect from NZD today?
The New Zealand dollar (NZD) begins with support from the Reserve Bank of New Zealand’s recent hawkish policy shift. The RBNZ raised the Official Cash Rate by 25 basis points to 2.50% on 8 July, citing persistent inflation risks and indicating that further rate increases remain possible, although their timing will depend on incoming economic data and inflation trends. Since then, RBNZ Chief Economist Paul Conway has reinforced the central bank’s inflation-focused stance, warning that businesses are increasingly willing to pass higher costs on to consumers, keeping inflation risks 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.
- 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 is on a cautious footing as markets look ahead to the Bank of Japan’s (BoJ) July 30–31 policy meeting. Recent reports indicate that the BoJ is expected to leave its policy rate unchanged at 1.00%, even after raising rates in June, while potentially upgrading its economic growth forecasts. Policymakers appear willing to pause before considering any additional tightening, as they assess inflation, wage growth, and the impact of global trade developments.
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
No major news event
What can we expect from Oil today?
Crude oil is trading in a market that remains highly sensitive to both supply and demand developments. The biggest fundamental driver is OPEC’s latest Monthly Oil Market Report, in which the group reduced its 2026 global oil demand growth forecast for the third consecutive month, lowering expected demand growth by 190,000 barrels per day to 780,000 bpd. OPEC cited softer global consumption and the lingering economic effects of earlier geopolitical disruptions, although it maintained a more optimistic outlook for 2027 as supply conditions normalize.
Next 24 Hours Bias
Strong Bullish
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