IC – Asia Fundamental Forecast | 24 July 2026
What happened in the U.S. session?
Markets were dominated by renewed geopolitical risk, a sharp surge in crude oil prices, and risk-off sentiment across global equities rather than major U.S. macroeconomic data releases. Brent crude briefly climbed above $100 per barrel for the first time since May after attacks on Saudi oil tankers and escalating U.S.-Iran tensions raised fears of supply disruptions through key Middle East shipping routes. The jump in energy prices reignited concerns that higher inflation could keep the Federal Reserve more hawkish, pushing U.S. Treasury yields higher and weighing heavily on risk assets.
What does it mean for the Asia Session?
Asian traders should begin Friday with a cautious approach as markets prepare for a heavy European data session. The UK’s Retail Sales report and the Flash PMI releases from France, Germany, and the UK are expected to set the tone for the euro and pound later in the day, while ongoing volatility in crude oil driven by Middle East tensions remains a major market theme. Strong PMI readings could improve risk sentiment and support European currencies, whereas weaker data combined with elevated oil prices may reinforce defensive trading and increase volatility across forex and commodity markets.
The Dollar Index (DXY)
Key news events today
No major news event
What can we expect from DXY today?
The U.S. dollar (USD) begins the session on a firm footing after strengthening broadly following the ECB’s decision to leave interest rates unchanged and continued geopolitical tensions in the Middle East. Safe-haven demand remains elevated as traders monitor the risk of further disruptions to global energy supplies, with higher oil prices reinforcing concerns that inflation could stay persistent and keep the Federal Reserve cautious about easing policy. Stronger-than-expected U.S. labor market data earlier in the week also supported Treasury yields and the dollar, while the euro and yen remain under pressure due to comparatively dovish monetary policy expectations.
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
Strong Bullish
Gold (XAU)
Key news events today
No major news event
What can we expect from Gold today?
Gold enters Friday on the defensive after suffering a sharp selloff in the previous session. The biggest driver has been the renewed surge in oil prices following escalating Middle East tensions, particularly attacks on Saudi shipping, which have reignited inflation concerns. Higher energy prices have prompted investors to increase expectations that the U.S. Federal Reserve may need to keep interest rates higher for longer or even deliver another rate hike later this year. As a result, the U.S. dollar and Treasury yields strengthened, reducing the appeal of non-yielding assets such as gold.
Next 24 Hours Bias
Weak Bearish
The Australian Dollar (AUD)
Key news events today
No major news event
What can we expect from AUD today?
The Australian dollar is on a stronger footing after a series of positive domestic developments boosted expectations that the Reserve Bank of Australia (RBA) could continue tightening monetary policy. Australia’s June employment report significantly exceeded expectations, with job creation far stronger than forecast while the unemployment rate held steady at 4.4%. The resilient labour market reinforced the view that inflation pressures remain persistent, increasing the likelihood of another RBA rate hike in the coming months. As a result, Australian bond yields moved higher, and the Australian dollar outperformed most of its G10 peers.
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
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) enters Friday with a bullish medium-term bias, supported by stronger-than-expected inflation data and expectations that the Reserve Bank of New Zealand (RBNZ) will continue tightening monetary policy. New Zealand’s Q2 CPI accelerated to 4.1% year-over-year, exceeding both market forecasts and the RBNZ’s previous projection, reinforcing the case for further interest-rate increases after the central bank’s 25-basis-point hike to 2.50% earlier this month.
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
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 with USD/JPY trading near its weakest levels since 1986. The primary driver continues to be the wide interest rate gap between the United States and Japan, alongside higher oil prices and ongoing geopolitical tensions that are supporting the U.S. dollar. Although Japanese authorities have again warned that they are prepared to take decisive action in the foreign exchange market if excessive volatility persists, traders remain unconvinced that intervention is imminent unless the yen weakens much further.
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
No major news event
What can we expect from Oil today?
The oil market is expected to remain elevated after a sharp rally driven by renewed geopolitical tensions in the Middle East. The biggest catalyst is the escalation in attacks on Saudi oil tankers in the Red Sea by Iran-backed Houthi forces, raising fears of further disruptions to global crude shipments through the Bab el-Mandeb Strait and the Strait of Hormuz. Brent crude has climbed above $100 per barrel, while WTI has traded above $90, as traders continue to price in a higher geopolitical risk premium.
Next 24 Hours Bias
Strong Bullish
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