Insights 
VT 
The Australia Flash Manufacturing PMI increased to 52.9 compared to a previous 51.3. Manufacturing output rose to 53.9 from 52.3 in July.
The Flash Services PMI climbed to 55.1 from 53.8. This marks the strongest level in 40 months, with a notable rise in services hiring, the fastest since April 2023.
Composite PMI Findings
The Composite PMI reached 54.9, up from 53.6, the highest since April 2022. Robust new orders and exports, particularly from the US, Europe, and the Asia-Pacific region, drove growth.
Employment trends varied, with services hiring up, while manufacturing jobs experienced a slight decline—the first such fall since February. Capacity gains stabilised outstanding work after three months of backlog clearance.
Inflation for both input and output prices eased but continued to rise at a softer pace. Overall sentiment improved, with manufacturers being most optimistic since April 2022, expecting better conditions and expansion in the future.
The surprisingly strong economic data released today suggests the Australian economy is performing much better than we anticipated. The flash composite PMI, hitting its highest level since April 2022, points to broad-based acceleration across both services and manufacturing. This resilience challenges the prevailing view of a slowing economy that we held just a few weeks ago.
RBA Market Implications
This report will almost certainly force the Reserve Bank of Australia to reconsider its stance. With the latest quarterly CPI data from July 2025 showing inflation still stubbornly high at 4.0%, this new evidence of economic strength makes interest rate cuts in the near future highly improbable. We should now be pricing in a “higher for longer” scenario from the RBA, which has held the cash rate at 4.35% for over a year.
Given this, we see a clear opportunity for bullish positions on the Australian dollar. The combination of a hawkish central bank and strong export growth, particularly with demand noted from a resilient US economy, should provide a significant tailwind for the AUD. We should consider buying AUD/USD call options to capitalize on potential upward momentum in the coming weeks.
For the equities market, this data is a positive signal for corporate earnings, especially in the services sector. The ASX 200 has been trading in a relatively tight range, and this could be the catalyst for a breakout. We are looking at index call options or bull call spreads on the XJO to profit from a potential rally driven by improved economic sentiment.
Conversely, we should prepare for rising government bond yields. The prospect of the RBA holding rates firm, or even entertaining another hike, will put downward pressure on bond prices. We should look at derivatives that benefit from higher yields, such as buying puts on Australian 10-year Treasury bond futures.
The report’s detail on strong new orders and the best export growth in six months adds credibility to this outlook. This isn’t just a fleeting sentiment boost; it’s backed by tangible business activity, supported by firm iron ore prices which have held above $110 per tonne. Looking back, this strength is reminiscent of the recovery phase we saw in 2022, suggesting the slowdown of 2024 may have been a temporary pause rather than a new trend.
