Australia’s manufacturing sector grew quickly in August. The S&P Global Manufacturing PMI rose to 53.0, its highest level since September 2022. Production increased at its fastest rate since April 2022, and new orders grew at the quickest pace in almost three years. The PMI improved from 51.3 in July, marking the best performance since September 2022. Both production and new orders showed strong growth, and exports also grew for the first time since May. Employment increased for the sixth consecutive month as manufacturers hired more workers to handle rising workloads.

Inventory Levels and Business Confidence

Companies increased their inventory levels at the fastest rate in over three years to prepare for supply delays. Business confidence reached its highest point since February 2022, fueled by optimism about new products and economic conditions. Price increases were modest, with only slight changes in costs for inputs and outputs. The PMI data doesn’t usually affect markets much, and the AUD/USD exchange rate has remained steady at about 0.6543. The strong manufacturing data, with the PMI now at its highest since September 2022, suggests a strong domestic economy. However, the Australian dollar remains slow, hovering around 0.6543, because this positive local news is being overshadowed. This indicates that external factors are currently more influential on the currency. Even as production and new orders rise, the report highlights low price pressures, which is important for our outlook. With Australia’s latest quarterly CPI showing a manageable 3.2% in July 2025, the Reserve Bank of Australia has little reason to raise interest rates from their current level of 4.35%. This lack of pressure from the RBA is likely to limit any significant gains for the Aussie dollar in the short term.

Global Factors and Currency Implications

We need to consider the strength of the US dollar, which remains strong. Recent US jobs data showed a solid increase of over 215,000 positions, while US core inflation remains high at around 3.4%, pushing the Federal Reserve towards a more aggressive stance. This interest rate difference between the US and Australia continues to drag the AUD/USD exchange rate down. Additionally, we are noticing signs of weakness in China’s economy, an important market for Australian exports. China’s manufacturing PMI barely remained in growth territory at 50.2 last month, contributing to a drop in iron ore prices to about $105 per tonne. This reduced demand for key commodities is putting pressure on the Australian dollar, countering some of the positive domestic news. For derivative traders, the clash between strong local data and tough global challenges suggests that the AUD/USD pair may stay within a certain range. Implied volatility on options might present a selling opportunity since the currency may struggle to break out of its recent 0.6450-0.6600 channel. Selling strangles could be a useful strategy if this sideways movement continues. Historically, from 2023 and 2024, the 0.6650 level has acted as a significant barrier for the AUD/USD. We might consider buying longer-dated, out-of-the-money call options as a cost-effective way to prepare for a potential breakout. This strategy would be beneficial if US economic data suddenly weakens, allowing Australia’s solid fundamentals to finally lift the currency. Create your live VT Markets account and start trading now.

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