IC Markets Asia Fundamental Forecast | 21 August 2025
What happened in the U.S session?
The overnight U.S. session was dominated by Fed policy anticipation, tech stock weakness, mixed macro data, and company-specific news in retail and credit markets, with equities, treasuries, and the U.S. dollar among the most impacted instruments. Wall Street’s major indexes fell, led primarily by declines in technology stocks. The Nasdaq dropped to a two-week low, and both the S&P 500 and Dow Jones also posted losses.
This marked one of the largest two-day drops for the Nasdaq since April 2025, driven by profit-taking in high-flying tech names like Nvidia, Apple, and Meta amid growing caution ahead of the Federal Reserve’s Jackson Hole symposium and concerns about AI-related stock valuations.
What does it mean for the Asia sessions?
Asia-Pacific equities have been choppy this week as tech weakness weighed on Hong Kong and Taiwan, while Japan’s Nikkei has been sensitive to trade data and sector rotations; regional indices slipped on Wednesday amid a broader tech-led pullbackHigh-impact Thursday Asia-time releases: Japan PMIs (00:30 GMT) and Australia inflation expectations (01:30 GMT) as immediate catalysts; then stay alert for headlines from Jackson Hole day one that could hit during U.S./Europe hours but feed back into Asia open Friday.
The Dollar Index (DXY)
Key news events today
Unemployment claims (12:30 pm GMT)
Philly Fed manufacturing index (12:30 pm GMT)
Flash manufacturing PMI (1:45 pm GMT)
Flash services PMI (1:45 pm GMT)
Existing home sales (2:00 pm GMT)
What can we expect from DXY today?
The USD is broadly stable but carries a slightly weaker bias into Thursday’s US session, as markets await clarity from Fed officials and Jackson Hole. Short-term direction will depend on the next wave of speeches and macro data, with volatility set to rise into the end of the week. Solidifying expectations of a 25bp rate cut at the September FOMC meeting continue to weigh on the dollar, keeping it on the back foot versus major currencies.
Central Bank Notes:
- The Board of Governors of the Federal Reserve System voted unanimously to maintain the Federal Funds Rate in a target range of 4.25% to 4.50% at its meeting on July 29–30, 2025, keeping policy unchanged for the fifth consecutive meeting.
- The Committee reiterated its objective of achieving maximum employment and inflation at the rate of 2% over the longer run. While uncertainty around the economic outlook has diminished since earlier in the year, the Committee notes that challenges remain and continued vigilance is warranted.
- Policymakers remain highly attentive to risks on both sides of their dual mandate. The unemployment rate remains low, near 4.2%–4.5%, and labor market conditions are described as solid. However, inflation is still somewhat elevated, with the PCE price index at 2.6% and core inflation forecast at 3.1% for year-end 2025, up from earlier projections; tariff-related pressures are cited as a contributing factor.
- The Committee acknowledged that recent economic activity has expanded at a solid pace, with second-quarter annualized growth estimates near 2.4%. However, GDP growth for 2025 has been revised downward to 1.4% (from 1.7% projected in March), reflecting expectations of a slowdown in the coming quarters.
- In the revised Summary of Economic Projections, the unemployment rate is expected to average 4.5% in 2025, and headline PCE inflation is forecast at 3.0% for the year, with core PCE at 3.1%. Policymakers continue to anticipate that inflation will moderate gradually, with ongoing risks from tariffs and global conditions.
- The Committee reaffirmed its data-dependent and risk-aware approach to future policy decisions. Officials stated they are prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede progress toward the Fed’s goals.
- As previously outlined, the Committee continues the measured run-off of its securities holdings. The pace of balance sheet reduction, which slowed since April (monthly redemption cap on Treasury securities reduced from $25B to $5B, while holding agency MBS cap steady at $35B), was left unchanged this month to support orderly market functioning and financial conditions.
- The next meeting is scheduled for 16 to 17 September 2025.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
Unemployment claims (12:30 pm GMT)
Philly Fed manufacturing index (12:30 pm GMT)
Flash manufacturing PMI (1:45 pm GMT)
Flash services PMI (1:45 pm GMT)
Existing home sales (2:00 pm GMT)
What can we expect from Gold today?
Gold prices are steady but volatile, with all eyes on the Jackson Hole Symposium for valuable Fed rate signals, an event likely to set the next big move in bullion. Asian traders should monitor Fed commentary, as well as shifts in the U.S. dollar and major geopolitical updates, for short-term trading opportunities. Gold’s performance is closely tied to U.S. rate cut expectations. Traders are pricing in an 84% probability that the Fed will cut rates by 25 basis points in September, and this outlook is a major driver for gold’s near-term direction.
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?
The latest data and developments point to sustained weakness in the Australian Dollar, driven by cautious markets, subdued Chinese growth prospects, and a dovish RBA outlook.Earlier in August, the Reserve Bank of Australia (RBA) cut rates by 25 basis points to 3.60%, citing cooling inflation and a higher unemployment rate (now at multi-year highs). Most forecasters expect further easing this year, depending on inflation trends. Meanwhile, Australia’s business confidence remains neutral, and consumer mood has improved slightly in August, though not enough to reverse the AUD’s trajectory yet.
Central Bank Notes:
- The RBA held its cash rate steady at 3.85% at the July meeting on 8 July 2025, following a 25-basis-point reduction in May and in line with widespread market expectations, after recent data showed inflation tracking within the target band.
- Inflation continues to ease from its peak, with higher interest rates helping to rebalance demand and supply across the Australian economy. Data for the June quarter signaled ongoing progress, though underlying pressures persist in certain sectors.
- Trimmed mean inflation for the June quarter likely remained near 2.9% and headline CPI around 2.4%, both within the RBA’s 2–3% target range. The Board noted further evidence of inflation convergence, but flagged that not all price categories are moving in tandem.
- Financial markets have exhibited increased volatility in the wake of global tariff and trade policy developments—especially following recent announcements from the U.S. and the EU. This has pushed asset prices higher but contributed to an uncertain outlook for domestic growth and employment.
- Private domestic demand showed a tentative recovery. Real household incomes improved, and signs of easing household financial stress emerged, but some business sectors continued to face subdued demand, limiting their ability to pass on cost increases.
- Labour market conditions remained tight overall. Employment continued to expand, with low rates of underutilization. Business surveys suggest labour availability remains a constraint, though there are signs of a gradual easing compared to earlier in 2025.
- Underlying wage growth softened modestly, though unit labour cost growth remains elevated due to below-trend productivity gains. The Board remains attentive to developments in wage and productivity dynamics as cost pressures continue to evolve.
- Uncertainties persist for both domestic activity and inflation. Consumption growth has risen, but more slowly than anticipated three months ago, with global and domestic factors both contributing to the cautious outlook.
- There remains a risk that household spending picks up more slowly than forecast, which could result in ongoing subdued aggregate demand and a sharper deterioration in employment conditions.
- Given that inflation is expected to remain around the target band, the Board judged that it was appropriate to keep policy settings unchanged in July, maintaining a position that is still mildly restrictive.
- The Board continues to monitor all incoming data and assesses risks carefully, with a focus on global trends, domestic demand indicators, inflation outcomes, and the labour market outlook.
- The RBA remains committed to its mandate of price stability and full employment and stands ready to adjust policy as needed to achieve these objectives.
- The next meeting is on 11 to 12 August 2025.
Next 24 Hours Bias
Weak Bearish
The Kiwi Dollar (NZD)
Key news events today
No major new event
What can we expect from NZD today?
The New Zealand Dollar is under pronounced pressure following the RBNZ’s rate cut and dovish outlook, with further downside possible if global risk sentiment deteriorates or the central bank signals more easing ahead. The latest data show New Zealand’s credit card spending rose 0.2% month-on-month in July to an all-time high of NZ$6.89B, with annual growth bouncing back to 1.7%. However, economic growth for 2025 is forecast at just 2.4%, and retail sales numbers continue to show modest gains, suggesting domestic demand is steady but not overheating.
Central Bank Notes:
- The Monetary Policy Committee (MPC) agreed to hold the Official Cash Rate (OCR) at 3.25% on 9 July, marking the first pause following six consecutive rate cuts.
- The MPC cited heightened uncertainty and near-term inflation risks as reasons to wait until August for further action.
- Although the annual consumer price index inflation increased to 2.5% in the first quarter of 2025, it remained within the MPC’s target range of 1 to 3%, noting that the outlook for medium-term inflation pressures has evolved broadly in line with the May MPS projections.
- While it is expected to be near the upper end of the band in the second and third quarters of this year, easing core inflation and spare capacity in the economy should help return it toward the 2% midpoint over time.
- The MPC noted that, despite global factors, domestic financial conditions are evolving broadly as expected, as mortgage and deposit interest rates have continued to decline, reflecting a lower OCR, strong bank liquidity, and soft credit growth.
- In aggregate, GDP growth over the December and March quarters was stronger than expected, reflecting a pickup in household consumption and business investment. However, higher-frequency indicators suggest weaker-than-expected growth in April and May.
- Large economic policy shifts overseas and concerns about sovereign risk could result in additional financial market volatility and increased bond yields, while prolonged economic uncertainty might induce further precautionary behaviour by households and firms, slowing the domestic economic recovery.
- Subject to medium-term inflation pressures continuing to ease in line with the Committee’s central projections, the Committee expects to lower the OCR further, broadly consistent with the projection outlined in May.
- The next meeting is on 20 August 2025.
Next 24 Hours Bias
Medium Bearish
The Japanese Yen (JPY)
Key news events today
No major news event
What can we expect from JPY today?
The yen is trading with a slightly weaker tone but remains underpinned by receding trade and political risks. Short-term direction hinges on global central bank rhetoric and Friday’s major Japanese economic data prints. Japan’s political scene remains in focus after recent elections left Prime Minister Shigeru Ishiba’s coalition weakened but still in office. The PM has vowed to stay, alleviating immediate political risk for the yen, which had firmed earlier in the month on this theme.
Central Bank Notes:
- The Policy Board of the Bank of Japan decided on 31 July, by a unanimous vote, to set the following guidelines for money market operations for the inter-meeting period:
- The Bank will encourage the uncollateralized overnight call rate to remain at around 0.5%.
- The BOJ will maintain its gradual reduction of monthly outright purchases of Japanese Government Bonds (JGBs). The scheduled amount of long-term government bond purchases will, in principle, continue to decrease by about ¥400 billion each quarter from January to March 2026, and by about ¥200 billion each quarter from April to June 2026 onward, targeting a purchase level near ¥2 trillion in January to March 2027.
- Japan’s economy is experiencing a moderate recovery overall, though some sectors remain sluggish. Overseas economies are generally growing moderately, but recent trade policies in major economies have introduced pockets of weakness. Exports and industrial production in Japan are essentially flat, with any uptick largely driven by front-loaded demand ahead of U.S. tariff increases.
- On the price front, the year-on-year rate of change in consumer prices (excluding fresh food) remains in the mid-3% range. This reflects continued wage pass-through, previous import cost surges, and further increases in food prices, particularly rice. Expectations for future inflation have begun to rise moderately.
- The effects of the earlier import price and food cost increases are expected to fade during the outlook period. There may be a temporary stagnation in core inflation as overall growth momentum softens.
- Looking forward, the economy is likely to see a slower growth pace in the near term as overseas economies feel the pinch of ongoing global trade policies, putting downward pressure on Japanese corporate profits. Accommodative financial conditions are expected to buffer these headwinds somewhat. In the medium term, as global growth recovers, Japan’s growth rate is also expected to improve.
- With renewed economic expansion, intensifying labor shortages, and a steady rise in medium- to long-term expected inflation rates, core inflation is projected to gradually pick up. By the latter half of the BOJ’s projection period, inflation is forecast to move in line with the 2% price stability target.
- There are multiple risks to the outlook, with especially elevated uncertainty regarding the future path of global trade policies and overseas price trends. The BOJ will continue to closely monitor their impact on financial and foreign exchange markets, as well as on Japan’s economy and inflation.
- The next meeting is scheduled for 17 to 18 September 2025.
Next 24 Hours Bias
Weak Bullish
Oil
Key news events today
No major news event
What can we expect from Oil today?
Oil markets are trading in a volatile zone as traders balance near-term supply/demand fundamentals (tight U.S. inventories, OPEC+ production) against the longer-term impact of potential geopolitical developments regarding Russia and Ukraine. Immediate focus will be on inventory trends and diplomatic signals, with any surprise news likely to move prices sharply.
Oil prices have rebounded about 2% heading into Thursday’s Asian trading hours, after a stronger-than-expected drawdown in U.S. crude inventories. The U.S. Energy Information Administration reported a 6.0 million barrel drop last week, far exceeding analyst expectations and supporting a bullish case for crude.
Next 24 Hours Bias
Medium Bullish
