IC – Asia Fundamental Forecast | 17 July 2026
What happened in the U.S. session?
Markets were driven primarily by a combination of softer U.S. inflation signals, stronger-than-expected economic activity data, ongoing geopolitical tensions in the Middle East, and the start of another busy earnings season. Recent U.S. CPI and PPI reports continued to reinforce expectations that inflation is cooling, prompting investors to further reduce the probability of a Federal Reserve rate hike in the near term. At the same time, solid U.S. retail sales and lower jobless claims pointed to continued resilience in the U.S. economy, helping Treasury yields recover from earlier declines and providing modest support to the U.S. dollar.
What does it mean for the Asia Session?
Asian traders heading into Friday should keep a close eye on risk sentiment after a volatile U.S. session. Stronger-than-expected U.S. inflation data has reinforced expectations that the Federal Reserve will keep interest rates higher for longer, supporting the U.S. dollar while pressuring rate-sensitive assets. At the same time, renewed geopolitical tensions in the Middle East have kept Brent crude oil above $85 per barrel, maintaining upside risks for inflation and commodity-linked currencies despite mixed equity market performance.
The Dollar Index (DXY)
Key news events today
President Trump Speaks (1:00 am GMT)
Prelim UoM Consumer Sentiment (2:00 pm GMT)
Prelim UoM Inflation Expectations (2:00 pm GMT)
What can we expect from DXY today?
The U.S. dollar is ending the week under pressure after a series of softer-than-expected inflation readings reduced expectations that the Federal Reserve will tighten monetary policy again in the near term. Both CPI and PPI data suggested easing price pressures, leading markets to sharply scale back the probability of a July rate hike. Although stronger U.S. retail sales and lower jobless claims have highlighted the resilience of the U.S. economy, those positive data have not been enough to reverse the dollar’s decline.
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 Bearish
Gold (XAU)
Key news events today
President Trump Speaks (1:00 am GMT)
Prelim UoM Consumer Sentiment (2:00 pm GMT)
Prelim UoM Inflation Expectations (2:00 pm GMT)
What can we expect from Gold today?
Gold prices are ending the week under pressure as investors continue to reassess the outlook for U.S. monetary policy. While softer U.S. inflation data earlier this week initially boosted bullion by increasing expectations of future Federal Reserve rate cuts, those gains have faded as stronger energy prices, a firmer U.S. dollar, and resilient Treasury yields revived concerns that inflation could remain elevated for longer. Markets are also monitoring geopolitical developments in the Middle East and broader global risk sentiment, which continue to provide intermittent safe-haven support for gold despite the recent pullback.
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 is ending the week on a relatively firm footing, supported by a softer U.S. dollar after weaker-than-expected U.S. inflation data reduced expectations of a near-term Federal Reserve rate hike. At the same time, stronger Chinese economic data earlier this week has improved sentiment toward the Australian economy, given China’s importance as Australia’s largest trading partner. Markets also continue to price in a relatively hawkish Reserve Bank of Australia (RBA), with policymakers maintaining that inflation remains above target and further policy action will be taken if necessary.
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 Bearish
The Kiwi Dollar (NZD)
Key news events today
No major news event
What can we expect from NZD today?
The New Zealand dollar (NZD) remains supported at the end of the week after the Reserve Bank of New Zealand’s recent hawkish policy shift, with markets continuing to digest the bank’s 25-basis-point rate increase to 2.50% and signals that further tightening remains possible if inflation stays persistent. Recent comments from RBNZ officials have reinforced concerns that businesses are increasingly passing higher costs on to consumers, keeping inflation risks elevated despite some easing in global oil prices.
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 yen remains under pressure near multi-decade lows against the U.S. dollar as the wide interest rate differential between the Federal Reserve and the Bank of Japan (BOJ) continues to favor the dollar, although softer U.S. inflation has reduced expectations of further Fed tightening. Markets are increasingly focused on the BOJ’s July 30–31 policy meeting after new BOJ surveys showed Japanese households’ inflation expectations reached record highs, strengthening the case for additional rate hikes later this year.
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
Strong Bearish
Oil
Key news events today
No major news event
What can we expect from Oil today?
Oil prices remain supported heading into Friday, as traders continue to price in elevated geopolitical risk in the Middle East. Although prices eased slightly from recent highs, Brent crude has held near the mid-$80 per barrel area while WTI remains close to $80 per barrel after a strong rally earlier in the week. The primary driver continues to be concerns over potential supply disruptions following renewed U.S. military action against Iran, the ongoing closure of the Strait of Hormuz, and threats to shipping through the Bab el-Mandeb route.
Next 24 Hours Bias
Medium Bearish
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