AUD Slips as Soft Inflation Offsets Chinese PMI Beat

Key Moments

AUD/USD traded around 0.6970 and extended its decline for a third straight session during Asian dealings on Wednesday.
Australia’s trimmed mean CPI held at 3.6% YoY, while the monthly trimmed measure slowed to 0.2%, below the 0.3% forecast.
China’s September RatingDog Manufacturing PMI rose to 52.1 and Services PMI to 51.6, both topping prior readings and consensus, but providing limited support to the Australian Dollar.

Australian Dollar Under Pressure Despite Data Flow

AUD/USD remained on the defensive during Asian trading on Wednesday, hovering near 0.6970 as the pair posted a third consecutive daily loss. The Australian Dollar (AUD) struggled to attract buyers in spite of a series of notable economic releases from both Australia and China, its largest trading partner.

In Australia, headline price growth picked up while underlying inflation showed signs of cooling. The Consumer Price Index (CPI) increased to 4.0% year-over-year in August, matching expectations and accelerating from 3.5% in July. On a monthly basis, the CPI rose 0.4%.

However, the closely watched trimmed mean measure, which is used to assess core inflation dynamics, came in slightly softer than anticipated. The annual trimmed mean CPI remained at 3.6% year-over-year, while the monthly trimmed reading eased to 0.2%, narrowly missing the projected 0.3%. The softer core print pointed to moderating underlying price pressures even as the headline pace picked up.

Chinese Official PMIs Move Back Into Expansion

Economic surveys out of China signaled an improvement in business conditions in September, with both manufacturing and services indicators moving higher. Official figures released by the National Bureau of Statistics (NBS) showed the Manufacturing Purchasing Managers Index (PMI) returning to expansion territory at 50.1, in line with forecasts and up from 49.8 in August.

The NBS Non-Manufacturing PMI also registered a solid gain, climbing to 50.2 from 49.0 in the prior month and beating expectations of 49.3. The moves suggested a stabilization in broader activity as both sectors crossed or remained above the 50 threshold that separates contraction from expansion.

Private-Sector Chinese PMIs Signal Broader Momentum

Private-sector data painted an even stronger picture of Chinese economic momentum. The RatingDog Manufacturing PMI advanced to 52.1 in September, surpassing both the previous 51.5 reading and the 51.6 consensus estimate. This pointed to a faster pace of expansion across manufacturing firms.

At the same time, China’s Services PMI ticked up to 51.6, edging past the prior 51.4 and exceeding the expected 51.1. These readings indicated continued improvement across a wide range of industries and suggested that the recovery was broadening beyond goods production.

Despite these upbeat Chinese figures, the Australian Dollar failed to capitalize on the data. The stronger manufacturing and services PMIs did not translate into substantial support for AUD, leaving AUD/USD confined near its recent lows.

US Policy Expectations Drive Yields Higher

Market commentary from strategists at BNY Markets pointed to ongoing upward pressure across the US rates complex as investors continued to anticipate additional monetary tightening. They observed that with “the market expecting upwards of an additional 75bp in policy tightening through this cycle,” “bond yields across the curve continue to move higher,” reflecting the view that the Federal Reserve has not yet reached the end of its rate-hiking campaign.

Williams Emphasizes Data Dependence While Maintaining Hawkish Bias

Federal Reserve communication remained broadly hawkish, even as some language suggested less urgency immediately after the most recent rate increase. Fed’s Williams delivered a message that was characterized as moderately hawkish, with a FXS Speechtracker score of 6.4, slightly above the 6.2 historical average, indicating continuity in tone rather than a shift.

The speech stressed there was “no need for urgency” following the September rate hike, while still indicating that one additional increase was likely if economic conditions evolve as expected. The stance remained centered on returning inflation to the 2% target and preventing it from becoming entrenched. Projections that inflation would not reach the target until 2028, combined with robust US economic momentum and AI-driven investment pressures, were seen as reinforcing a preference for keeping policy restrictive for longer relative to the existing baseline.

The FXS Fed Sentiment Index declined by 1.43 points to 144.29, signaling a modest reduction in perceived hawkishness despite the above-average tone of the speech. With the index still well above the neutral level of 100, the Federal Reserve was viewed as remaining firmly in hawkish territory even as markets interpreted the “no urgency” remarks as a slight softening at the margin.

RatingDog Manufacturing PMI – Definition and Latest Reading

The RatingDog Manufacturing Purchasing Managers Index (PMI) is released monthly by Caixin Insight Group and S&P Global and serves as a leading gauge of manufacturing business activity in China. The index is derived from surveys of senior executives at both private-sector and state-owned companies. Respondents report changes in conditions compared with the previous month, providing early signals for trends in indicators such as Gross Domestic Product (GDP), industrial production, employment, and inflation.

The PMI ranges from 0 to 100. A reading of 50.0 indicates no change from the previous month, levels above 50 signal expansion in the manufacturing sector and are typically considered supportive for the Renminbi (CNY), while readings below 50 point to contraction and are usually seen as negative for CNY.