IC Markets Global – Asia Fundamental Forecast | 07 January 2026
What happened in the U.S. session?
Overnight in the U.S. session, risk appetite stayed firm with U.S. equities edging higher toward record levels, Treasury yields ticking up slightly, and the dollar broadly steady as traders positioned for key inflation and labor data later in the week. The main scheduled macro release was the U.S. services PMI, which showed ongoing expansion but at a slower pace, tempering some of the recent growth optimism.
What does it mean for the Asia Session?
Asian traders will focus on a cluster of key macro releases that could drive volatility in AUD, EUR, USD, and CAD pairs in the Asian and early European sessions. Australia prints its monthly CPI figures (headline m/m and y/y plus trimmed mean m/m), which will heavily influence expectations for the Reserve Bank of Australia and thus AUD crosses at the start of the day. Later in the European morning, the eurozone releases its Core CPI and headline CPI flash estimates year‑on‑year, critical for gauging the European Central Bank’s policy path and likely to affect EUR/JPY and EUR/AUD.
The Dollar Index (DXY)
Key news events today
ADP Non-Farm Employment Change (1:15 pm GMT)
ISM Services PMI (3:00 pm GMT)
JOLTS Job Openings (3:00 pm GMT)
What can we expect from DXY today?
The U.S. dollar enters Monday of the week containing 7 January 2026 on a slightly firmer footing, with the dollar index edging up into the high‑98s after suffering its steepest annual decline in about eight years in 2025. However, market commentary still characterizes the move as a modest rebound within a broader bearish trend, as investors anticipate Federal Reserve rate cuts, remain wary of U.S. fiscal and political risks, and look ahead to key U.S. data releases that could either reinforce or challenge the prevailing bias to sell the dollar on rallies.
Central Bank Notes:
- The Federal Open Market Committee (FOMC) is widely expected to lower the federal funds rate target range by 25 basis points to 3.50%–3.75% at its December 9–10, 2025, meeting, marking the third consecutive cut after the October reduction to 3.75%–4.00%
- The Committee continues to pursue maximum employment and 2% inflation goals, with the labor market showing further softening as the unemployment rate rose to 4.4% in September 2025 amid modest job gains.
- Officials note persistent downside risks to growth alongside resilient activity, with inflation easing to 3.0% year-over-year CPI in September but remaining elevated due to tariff effects; core PCE stands at around 2.8% as of October.
- Economic activity grew at a 3.8% annualized pace in Q2 2025 per revised estimates, though Q3 and Q4 face headwinds from trade tensions, fiscal restraint, and data disruptions like the government shutdown.
- September’s Summary of Economic Projections forecasts 2025 unemployment at a median of 4.5%, with PCE inflation near 3.0% and core PCE at 3.1%, signaling a gradual disinflation path. Updates expected on December 10 may adjust for higher unemployment and lower growth.
- The Committee maintained its data-dependent approach, noting a softening labor market and inflation above the 2% target, while deciding to lower the federal funds rate target range by 25 basis points to 3.50%-3.75%. Dissent persisted, with multiple members opposing the cut or advocating for a hold, reflecting divisions similar to recent meetings.
- The FOMC confirmed the conclusion of its quantitative tightening program effective December 1, 2025, with Treasury rolloff caps at $5 billion per month and agency MBS caps at $35 billion per month to ensure ample reserves and market stability.
- The next meeting is scheduled for 27 to 28 January 2026.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
ADP Non-Farm Employment Change (1:15 pm GMT)
ISM Services PMI (3:00 pm GMT)
JOLTS Job Openings (3:00 pm GMT)
What can we expect from Gold today?
Gold remains near the very strong levels it reached at the end of last week, holding close to early‑2026 highs after an exceptional 2025 rally driven by safe‑haven demand, expectations of lower US interest rates, and broad macroeconomic uncertainty. Price action around the start of this week shows gold consolidating after its surge, with analysts describing a still‑bullish but potentially moderating trend for January as traders weigh possible central‑bank rate cuts, elevated global debt, and geopolitical risks against the risk of short‑term pullbacks or profit‑taking.
Next 24 Hours Bias
Strong Bullish
The Australian Dollar (AUD)
Key news events today
CPI m/m (12:30 am GMT)
CPI y/y (12:30 am GMT)
Trimmed Mean CPI m/m (12:30 am GMT)
What can we expect from AUD today?
The Australian dollar starts the week trading near recent highs against the US dollar after an 8% rise in 2025, underpinned by a hawkish Reserve Bank of Australia stance, firm domestic inflation, and expectations that Australian rates may rise while US rates fall. Markets are watching upcoming Australian inflation data and the late‑January CPI report, which could shape a potential RBA move at its early‑February meeting, while softer iron ore prices and uncertainty over China’s economy act as counterweights that may limit further gains.
Central Bank Notes:
- The Reserve Bank of Australia held its cash rate steady at 3.60% at the November 2025 policy meeting, adopting a cautious tone amid a surprise uptick in inflation data for the September quarter. This marks the fourth consecutive pause since the 25 basis point cut in August. The Board attributed some of the inflation rise to temporary factors like higher petrol prices and council rates, but noted signs of more persistent pressures from consumer demand.
- Policymakers emphasized vigilance on inflation, with trimmed mean inflation expected to remain elevated in the near term before nearing the 2–3% target midpoint by mid-2027. Recent data showed underlying inflation staying above target until at least the second half of 2026, prompting upward revisions to forecasts. Capacity pressures are seen as slightly more pronounced than previously assessed, delaying any easing.
- Headline CPI for the September quarter exceeded expectations, driven partly by temporary items, while underlying measures signal ongoing stickiness. The shift to monthly CPI reporting, with the first full edition in November 2025, will enhance real-time inflation monitoring. Housing and services remain resilient contributors to price pressures.
- Domestic demand shows firmness in services alongside below-trend growth elsewhere, with capacity pressures not expected to ease significantly. The labor market is gradually softening, with unemployment projected to stabilize around 4.4%, though wage growth and productivity dynamics keep unit labor costs a concern. Household spending faces headwinds from high borrowing costs.
- Global risks include geopolitical tensions and commodity volatility, set against modestly revised-up world growth outlooks. The Board describes its policy as mildly restrictive and data-dependent, balancing inflation control with employment goals. No rate hike was considered despite the inflation surprise.
- Monetary policy remains mildly restrictive to address lingering price stability risks amid household and global vulnerabilities. Communications reaffirm the dual mandate of 2–3% inflation and full employment, with readiness to adjust based on incoming data.
- Market expectations point to the cash rate holding through early 2026, with a possible modest cut to 3.3% mid-year if inflation eases as forecast. The new monthly CPI data will be key for timely insights.
- Monetary policy remains mildly restrictive, balancing progress on price stability against vulnerabilities in household demand and global outlook. Board communications reaffirm a dual mandate: price stability and full employment, while underscoring readiness to respond should risks materialize sharply.
- Analysts generally expect the cash rate to remain at current levels through early 2026, with only modest cuts possible later in the year if inflation moderates. The new monthly CPI release (first full edition Nov 2025) will be watched closely for timely signals on price trends.
- The next meeting is on 2 to 3 February 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 is trading slightly stronger in early-week activity, supported by improved global risk sentiment and a softer US dollar, with NZD/USD hovering around the 0.58 level after several sessions of gradual gains. The currency’s move is being driven more by external factors, particularly expectations of further US Federal Reserve rate cuts in 2026, than by any fresh domestic New Zealand data today, and markets remain attentive to incoming US economic releases and Fed commentary that could shift the interest-rate differential.
Central Bank Notes:
- The Monetary Policy Committee (MPC) left the Official Cash Rate (OCR) unchanged at 2.25% at its 26 November 2025 meeting, following the widely anticipated 25-basis-point reduction from 2.50%, and signaled that policy is now firmly in stimulatory territory while keeping the option of further easing on the table if needed.
- The decision was again reached by consensus, with members judging that the cumulative 325 basis points of easing over the past year warranted a period of assessment, even as several emphasized a willingness to cut further should incoming data point to a more protracted downturn or renewed disinflationary pressures.
- Headline consumer price inflation is projected to hover near 3% in late 2025 before gradually easing toward the 2% midpoint of the 1–3% target band through 2026, supported by contained inflation expectations around 2.3% over the two-year horizon and an expected pickup in spare capacity.
- The MPC noted that domestic demand remains subdued but shows tentative signs of stabilisation, with softer household spending and construction only partially offset by improving services activity; nevertheless, policymakers still expect services inflation to ease as wage growth moderates and the labour market loosens further over the coming year.
- Financial conditions continue to ease as wholesale and retail borrowing rates reprice to the lower OCR, contributing to gradually rising mortgage approvals and improving housing-related sentiment, although broader business credit growth remains patchy and sensitive to uncertainty about the durability of the recovery.
- Recent data confirm that GDP momentum is weak but not deteriorating as sharply as earlier in 2025, with high-frequency indicators pointing to a shallow recovery from a low base and ongoing headwinds from elevated living costs and fragile confidence weighing on discretionary consumption and investment.
- The MPC reiterated that external risks remain skewed to the downside, particularly from softer Chinese demand and uncertainty around United States trade policy, but noted that a lower New Zealand dollar continues to provide some offset via improved export competitiveness and support for tradables inflation.
- Looking ahead to early 2026, the Committee maintained a mild easing bias, indicating that a further cut toward 2.00–2.10% cannot be ruled out if activity fails to gain traction or if inflation undershoots projections, but current forecasts envisage the OCR remaining near 2.25% for an extended period provided inflation converges toward target and the recovery proceeds broadly as expected.
- The next meeting is on 18 February 2026.
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?
Today, the Japanese yen remains under pressure, trading around the mid‑156 to 157 per dollar area near ten‑month lows, as wide rate gaps with the US and uncertainty about the pace of Bank of Japan hikes weigh on the currency. Market participants are closely monitoring upcoming Japanese PMI and inflation data, along with shifts in US Federal Reserve cut expectations, to gauge whether USD/JPY can push again toward the 158–160 region or retreat on renewed intervention fears and stronger BoJ tightening bets.
Central Bank Notes:
- The Policy Board of the Bank of Japan will meet on 18–19 December with markets almost fully pricing a 25-basis-point hike, which would raise the short-term policy rate from 0.50% to around 0.75%, as the bank moves further away from its ultra-loose stance while stressing that any tightening will remain gradual and data-dependent.
- The BOJ is expected to continue guiding the uncollateralized overnight call rate in a narrow band around the new policy rate, near 0.75%, while signaling that the pace and timing of any additional hikes will depend on how past increases affect bank lending, corporate financing conditions, and overall economic activity.
- The quarterly path of JGB purchases remains on a pre-announced, gradual taper: outright purchases are being reduced by about ¥400 billion per quarter through March 2026, then by roughly ¥200 billion per quarter from April to June 2026, with the bank still aiming for JGB purchases to settle near ¥2 trillion in Q1 2027 and retaining flexibility to adjust the pace if market functioning or yield volatility deteriorate.
- Japan’s economy has softened in the near term, with Q3 2025 GDP contracting at an annualized rate of approximately 2.3%, as weaker residential investment and external demand weighed on activity. Meanwhile, business sentiment in manufacturing has recently improved to a roughly four-year high.
- Core consumer inflation (excluding fresh food) accelerated to around 3.0% year-on-year in October, up from 2.9% in September and remaining above the BOJ’s 2% target, while the “core-core” measure excluding both fresh food and energy rose to about 3.1%, underscoring persistent underlying price pressures.
- In the very near term, some input-cost pressures are easing as earlier import price surges fade, but services inflation linked to labor shortages, along with steady wage gains, continues to support broader price momentum; firms’ and households’ medium-term inflation expectations remain anchored slightly above 2%, keeping short-term inflation risks tilted to the upside.
- For the coming quarters, the BOJ assesses that real growth will likely run below potential as the economy digests tighter financial conditions and past yen depreciation. However, accommodative real rates, positive real wage growth, and improving corporate sentiment are expected to help sustain a modest recovery in private consumption and business investment.
- Over the medium term, as overseas demand stabilizes and domestic labor markets remain tight, the BOJ expects wage settlements and inflation expectations to keep core inflation on a gradual upward trajectory around or slightly above 2%, providing room for further cautious rate normalization as long as financial conditions remain supportive and the recovery is not derailed.
- The next meeting is scheduled for 22 to 23 January 2026.
Next 24 Hours Bias
Strong Bearish
Oil
Key news events today
EIA Crude Oil Inventories (2:30 pm GMT)
What can we expect from Oil today?
Oil prices are trading weakly, with the market focused on oversupply risks, steady OPEC+ output, and geopolitical events such as the Venezuela crisis and ongoing tensions in the Middle East. Analysts generally see a bearish to mildly stabilizing outlook for early January as rising global supply and cautious demand keep both Brent and WTI under downside pressure despite periodic geopolitical spikes.
Next 24 Hours Bias
Medium Bearish
