The Australia Flash Manufacturing PMI rose to 52.9, up from 51.3. Manufacturing output increased to 53.9 from 52.3 in July. The Flash Services PMI climbed to 55.1, rising from 53.8. This is the highest level in 40 months, with a significant boost in hiring for services—the fastest growth since April 2023.

Composite PMI Findings

The Composite PMI reached 54.9, up from 53.6, marking the highest level since April 2022. Strong new orders and exports, especially from the US, Europe, and the Asia-Pacific region, fueled this growth. Employment trends were mixed. Hiring in services increased, while manufacturing jobs dipped slightly, marking the first decline since February. Capacity gains helped stabilize outstanding work after three months of clearing backlogs. Inflation for input and output prices slowed down, though it continued to rise at a lower rate. Overall, sentiment improved, with manufacturers feeling more optimistic than they have since April 2022, expecting better conditions and growth ahead. Today’s unexpectedly strong economic data indicates that the Australian economy is performing better than we expected. The flash composite PMI’s rise, the highest since April 2022, shows growth in both services and manufacturing. This resilience contradicts our earlier belief that the economy was slowing down.

RBA Market Implications

This report will likely prompt the Reserve Bank of Australia (RBA) to rethink its position. With the latest quarterly CPI data from July 2025 showing inflation stubbornly high at 4.0%, this new evidence of economic strength makes interest rate cuts unlikely in the near future. We should now expect the RBA to maintain a “higher for longer” approach, especially since the cash rate has remained at 4.35% for over a year. Given this context, there is a clear opportunity for bullish positions on the Australian dollar. A firm central bank, combined with robust export growth—especially from a strong US economy—should support the AUD. We should consider buying AUD/USD call options to take advantage of potential upward momentum in the upcoming weeks. For the equities market, this data signals positive prospects for corporate earnings, particularly in the services sector. The ASX 200 has been moving within a narrow range, and this could trigger a breakout. We are looking at index call options or bull call spreads on the XJO to benefit from a potential rally fueled by improved economic sentiment. On the other hand, we should brace for rising government bond yields. The likelihood of the RBA keeping rates steady, or even increasing them, will pressure bond prices downward. We should explore derivatives that benefit from higher yields, like buying puts on Australian 10-year Treasury bond futures. The report highlights strong new orders and the best export growth in six months, lending credibility to this outlook. This isn’t just a temporary sentiment boost; it’s based on real business activity, supported by steady iron ore prices above $110 per tonne. This strength mirrors the recovery phase we saw in 2022, suggesting that the slowdown in 2024 was likely a brief pause rather than a new trend. Create your live VT Markets account and start trading now.

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