The Australian Dollar (AUD) rebounded on Thursday, breaking a five-day losing streak, as markets digested fresh economic data from both Australia and China — two tightly linked economies.
Australian Retail Sales Beat Expectations
Australia’s retail sector posted stronger-than-expected figures for June. Monthly retail sales rose by 1.2%, significantly higher than May’s 0.5% (revised from 0.2%) and well above the market forecast of 0.4%. On a quarterly basis, retail sales edged up 0.3% in Q2, up from 0.1% in Q1 (revised from flat growth).
This uptick in consumer spending provided support to the AUD/USD pair, which managed to stabilize after a period of consistent decline.
China’s Manufacturing PMI Slips Further Below 50
Meanwhile, data from China painted a more cautious picture. The NBS Manufacturing PMI fell to 49.3 in July from 49.7 in June, missing expectations of 49.7 and staying below the 50 threshold that separates expansion from contraction. The Non-Manufacturing PMI also eased to 50.1, down from June’s 50.5 and below the expected 50.3, signaling slower activity in the services sector.
Given China’s role as Australia’s largest trading partner, signs of economic weakness there often weigh on the Aussie Dollar. However, Australian data strength helped offset this effect in the short term.
US Dollar Pauses After Fed Decision
The US Dollar Index (DXY) cooled off and hovered around 99.80, giving room for the Australian Dollar to breathe. This comes after the Federal Reserve opted to keep interest rates unchanged at 4.25%–4.50% in its July meeting — a decision widely anticipated by the market.
Fed Chair Jerome Powell stated that no decisions had been made regarding policy changes for the September meeting. He noted that more time is needed to assess how new tariffs may influence inflation.
On the economic front, US GDP grew by an annualized 3.0% in Q2, a sharp reversal from the 0.5% contraction seen in Q1 and exceeding the 2.4% forecast. This strong growth underpins the Fed’s cautious but steady approach to interest rate policy.
US-EU Trade Deal and China Talks in Focus
Global sentiment also found some stability after the US and European Union reached a 15% tariff agreement on most European goods, effective August 1. This pact brings an end to months of tension and uncertainty.
Separately, US Treasury Secretary Scott Bessent said that discussions with China to extend the tariff truce are ongoing, and President Trump will make the final decision within the next two weeks. Bessent suggested that a rejection of the extension was unlikely, which may ease investor nerves.
China Pledges More Fiscal Support
China’s Finance Minister Lan Fo’an reassured markets by promising stronger fiscal measures to boost domestic demand and counter economic headwinds. He acknowledged growing uncertainty and signaled that Beijing would adopt a more proactive stance to support growth.
Australia’s CPI Shows Cooling Inflation
On the inflation front, Australia’s Consumer Price Index (CPI) rose 0.7% QoQ in Q2, slightly below the expected 0.8%, and eased from 0.9% in Q1. On a yearly basis, inflation slowed to 2.1%, compared to 2.4% previously, falling short of the 2.2% consensus.
Monthly CPI rose 1.9% YoY in June, down from 2.1%. Meanwhile, the RBA Trimmed Mean CPI — the central bank’s preferred gauge — increased 0.6% QoQ and 2.7% YoY, in line with market expectations.
Outlook
While weaker Chinese data remains a concern, the combination of strong retail sales, cooling inflation, and a pause in US Dollar strength has given the Aussie Dollar some near-term relief. Investors will continue monitoring developments in China and global trade dynamics closely, as they remain critical for AUD’s trajectory.
