IC Markets Asia Fundamental Forecast | 05 September 2025

IC Markets

Commodity

Forex

Economic

Summary:

The overnight US session was dominated by weak labor market data that solidified expectations for a 25 basis point Fed rate cut on September 17, with markets now pricing in a 96-98% probability.

What happened in the U.S session?

The overnight US session was dominated by weak labor market data that solidified expectations for a 25 basis point Fed rate cut on September 17, with markets now pricing in a 96-98% probability. The combination of disappointing ADP employment figures, rising jobless claims, and declining job openings created a dovish environment that benefited rate-sensitive assets like gold and growth stocks, while pressuring the US dollar and oil prices. Tech giants Alphabet and Apple were the session’s biggest winners due to favorable regulatory developments, while Treasury yields declined across the curve as investors positioned for monetary easing.

What does it mean for the Asia sessions?

Friday’s trading will be dominated by US employment data, which could solidify or derail Fed rate cut expectations for September 17. Asian traders should particularly watch for any surprises in the NFP numbers, as this could trigger significant moves in USD pairs and global risk sentiment. The combination of potential Fed easing, Chinese market intervention concerns, and ongoing trade uncertainties creates a complex but potentially volatile environment for Asian markets. Oil’s continued decline and gold’s strength reflect the current risk-off sentiment, while emerging market currencies appear positioned to benefit from dollar weakness if the Fed proceeds with cuts as expected.

The Dollar Index (DXY)

The US dollar enters Friday’s crucial employment data release from a position of significant technical and fundamental weakness. With Fed rate cuts appearing increasingly certain and political pressures mounting, the dollar faces its most challenging period in years. The September 5th jobs report will likely determine whether the current weakness accelerates or if seasonal patterns provide temporary relief for the beleaguered greenback.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 remains somewhat elevated, with the PCE price index at 2.6% and a core inflation forecast of 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 Bullish

Gold (XAU)

Gold enters Friday, September 5, 2025, in a powerful position, supported by multiple bullish catalysts, including Fed easing expectations, political uncertainty around central bank independence, robust institutional demand, and technical momentum. The day’s NFP release will determine whether gold can break to new all-time highs or experience a temporary consolidation. With Goldman Sachs forecasting potential moves to $4,000-$5,000 and technical indicators remaining bullish, the precious metal appears well-positioned for continued gains despite already significant year-to-date performance of over 40%.Next 24 Hours Bias

Strong Bullish

The Australian Dollar (AUD)

The Australian Dollar enters September 5, 2025, supported by strong fundamentals including robust GDP growth, record trade surpluses, and improving China relations. However, the currency faces near-term headwinds from rising domestic inflation that has effectively ruled out a September RBA rate cut, technical resistance levels, and mixed commodity price performance. The key drivers to watch include upcoming US employment data, Fed policy decisions, Chinese economic indicators, and Australia’s next inflation readings.Central Bank Notes:

● The RBA held its cash rate steady at 3.85% at the August meeting on 11–12 August 2025, maintaining its stance after keeping rates unchanged in July. The decision was widely expected, reflecting confidence that inflation is settling sustainably within the target.

● Inflation continues to moderate, though headline outcomes for the September quarter are not yet available. Timely indicators suggest price pressures in housing-related services and insurance remain elevated, even as tradables inflation stays subdued.

● The RBA’s preferred measure, trimmed mean inflation, is estimated to track close to 2.8 — 2.9%, signaling continued progress toward the midpoint of the 2–3% target range. Headline CPI is likely near 2.3%, subject to volatility in energy and food prices.

● Global conditions remain a source of uncertainty. The market reaction to ongoing U.S.–EU trade frictions has tempered slightly, but volatility persists across equity and commodity markets. These developments continue to feed into Australia’s trade outlook and business sentiment.

● Domestic demand showed further signs of recovery. Household consumption strengthened modestly over the winter months, helped by improving real incomes and a stabilizing housing market. However, business investment intentions remain mixed, with service industries stronger than manufacturing and construction.

● Labour market conditions remain relatively tight, but indicators point to reduced momentum compared with the first half of 2025. Job vacancies have eased, and while employment growth continues, underutilization edged slightly higher for the first time this year.

● Wage growth has moderated further, consistent with easing labour demand, though unit labour costs remain above average due to weak productivity performance. The RBA continues to flag productivity as a medium-term risk to cost dynamics.

● Forward-looking indicators suggest consumption growth may be softer than previously assumed, with households cautious despite modest income gains. Elevated rents and high borrowing costs continue to weigh on discretionary spending.

● The Board reasserted the risk that household spending may underperform forecasts, potentially dampening business conditions and leading to weaker labour demand if confidence fails to strengthen.

● The overall stance of monetary policy remains mildly restrictive, consistent with inflation outcomes near target and ongoing progress toward balance in the economy. The Board judged it prudent to leave rates unchanged, while emphasizing that adjustments remain contingent on incoming data.

● The Reserve Bank reaffirmed its commitment to price stability and full employment, noting its readiness to adjust settings if conditions diverge materially from baseline projections.

● The next meeting is on 8 to 9 September 2025.Next 24 Hours Bias

Medium Bullish

The Kiwi Dollar (NZD)

The New Zealand Dollar (NZD) continues to face downward pressure on Friday, September 5, 2025, trading around 0.5835-0.5840 against the US Dollar. The Kiwi has weakened 0.74% from the previous session and is down 6.19% over the past 12 months. Despite some recent positive momentum earlier in the week, the NZD remains under pressure from dovish RBNZ policy expectations and broader market uncertainty ahead of key US employment data.Central Bank Notes:

● The Monetary Policy Committee (MPC) agreed to cut the Official Cash Rate (OCR) by 25 basis points to 3.00% on 20 August 2025, marking a three-year low and continuing the easing cycle after July’s pause. The vote was split 4-2, with two members advocating a 50-basis-point cut, highlighting diverging views within the Committee.

● Policymakers indicated that significant uncertainty and a stalling economic recovery prompted this move, leaving the door open for further rate cuts later in the year, with a possible trough around 2.5% by December.

● Annual consumer price index inflation rose to 2.7% in the June quarter and is expected to reach 3% for the September quarter—at the upper end of the MPC’s 1 to 3% target band—but medium-term expectations remain anchored near the 2% midpoint..

● Despite the near-term uptick, headline inflation is projected to return toward 2% by mid-2026, as tradables inflation pressures ease and significant spare capacity continues to dampen domestic price momentum.

● Domestic financial conditions are broadly aligning with MPC expectations, as lower wholesale rates have translated into reduced borrowing costs for households. However, declining consumption and investment demand, higher unemployment, and subdued wage growth reflect ongoing economic slack.

● GDP growth stalled in the second quarter of 2025, contrasting with earlier projections. High-frequency indicators point to continued weakness driven by rising prices for essentials, weakening household savings, and constrained business lending.

● The MPC cautioned that ongoing global tariff uncertainties and policy shifts, especially recent changes in US trade regulations, could amplify market volatility and present both upside and downside risks to New Zealand’s recovery.

● Subject to medium-term inflation pressures continuing to ease as projected, the MPC signaled scope for further OCR cuts, possibly down to 2.5% by year-end, consistent with the latest Monetary Policy Statement outlook.

● The next meeting is on 22 October 2025.

Next 24 Hours Bias

Weak Bearish

The Japanese Yen (JPY)

The Japanese Yen faces a perfect storm of challenges heading into Friday, September 5, 2025. Political uncertainty surrounding PM Ishiba’s leadership, combined with the BoJ’s cautious monetary policy stance and persistent real wage declines, continues to undermine the currency. While inflation remains above the 2% target, the central bank appears reluctant to accelerate rate hikes amid global economic uncertainties and domestic political instability.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 BiasWeak Bearish

Oil

The oil market enters a critical phase as OPEC+ faces the choice between defending prices through production restraint or prioritizing market share through increased output. With the EIA projecting significant inventory builds averaging more than 2 million barrels per day in Q4 2025 and Q1 2026, the group’s September 7 decision will likely determine the market’s trajectory through year-end.

Next 24 Hours Bias

Medium Bearish

Source: IC Markets

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