Australian Dollar struggles to gain traction despite solid Chinese PMI Data

AUD/USD extends its losses for the third successive day, trading around 0.6970 during Asian hours on Wednesday. The currency pair remains under pressure, holding onto losses as the Australian Dollar (AUD) stays subdued following a flurry of key economic data releases from both Australia and its largest trading partner, China.

Australia’s Consumer Price Index (CPI) accelerated to 4.0% year-over-year (YoY) in August as expected, rising from 3.5% in July, while the monthly inflation rate eased to 0.4%. However, the underlying Trimmed Mean CPI came in slightly weaker than anticipated; while holding steady at 3.6% year-over-year, the monthly trimmed reading cooled to 0.2%, falling just short of the forecasted 0.3%.

Over in China, manufacturing and non-manufacturing surveys signaled expanding business activity in September. Official data from the National Bureau of Statistics (NBS) showed the Manufacturing PMI creeping back into expansion territory at 50.1, matching market forecasts and recovering from August's 49.8 reading. The NBS Non-Manufacturing PMI also saw a notable boost, rising to 50.2 from 49.0 in August, comfortably beating the market's expectation of 49.3.

The private-sector economic readings reflected similar momentum across Chinese industries. The RatingDog Manufacturing PMI climbed to 52.1 in September, outperforming both the previous 51.5 reading and the 51.6 consensus estimate. Additionally, China's Services PMI edged up to 51.6, beating both the prior month's 51.4 and the expected 51.1, indicating steady improvement across the broader economy.

US rate expectations push bond yields higher across the curve

Strategists at BNY Markets highlight that the rates complex remains under upward pressure as investors continue to price in further monetary tightening. With “the market expecting upwards of an additional 75bp in policy tightening through this cycle,” they note that “bond yields across the curve continue to move higher,” reflecting persistent conviction that the Fed is not yet at the end of its hiking path.

Williams tempers post-hike urgency but keeps Fed firmly hawkish

Fed’s Williams delivers a moderately hawkish message, with a FXS Speechtracker score of 6.4 slightly above the 6.2 historical average, signaling continuity rather than a tonal shift. The emphasis on “no need for urgency” after the September rate hike, combined with guidance that one further hike is likely if the economy meets expectations, underscores a data-dependent stance that still prioritizes getting inflation back to 2% and preventing it from becoming entrenched. Projections of inflation only reaching target in 2028, alongside strong US economic momentum and AI-related investment pressures, reinforce a bias toward keeping policy restrictive for longer relative to the established baseline.

The FXS Fed Sentiment Index fell by 1.43 points to 144.29, indicating a modest pullback in perceived hawkishness despite the speech’s above-baseline tone. With the index still well above the neutral 100 mark, the Fed remains firmly in hawkish territory even as markets interpret Williams’ “no urgency” language as a slight softening at the margin.