Australian building permits fell by 8.2% month-on-month in July, compared to an expected drop of 4.8% and a prior increase of 11.9%. Year-on-year figures from the previous report showed a rise of 27.4%.
China’s manufacturing sector grew with an S&P Global PMI of 50.5 for August, exceeding expectations of 49.5 and maintaining the prior 49.5. This marks the fastest growth in five months.
Australian Private Inflation and Business Inventories
The Australian private inflation survey recorded a decrease of 0.3% month-on-month, down from a prior increase of 0.9%, and a year-on-year rate of 2.8%, slightly lower than the previous 2.9%. Meanwhile, Australian Q2 business inventories grew by 0.1% quarter-on-quarter, below the expected 0.2%.
The People’s Bank of China set the USD/CNY reference rate at 7.1072, compared to an estimate of 7.1281. US tariffs have negatively impacted South Korean exports, with August growth slowing sharply to 1.3%.
Asian shares experienced a decline amidst uncertainties over US tariff rulings. Investors are closely monitoring US jobs data for indications on potential Federal Reserve rate cuts, while gold prices strengthen due to dollar weakness.
We are seeing a challenging setup for the Australian dollar, with domestic data showing weakness while its key trading partner signals strength. The sharp 8.2% drop in July building permits, alongside cooling private inflation figures, suggests Australia’s internal economy is slowing down. However, the surprisingly strong China manufacturing PMI indicates robust external demand, creating a conflicting outlook.
Volatility in the Aussie Dollar
Given this backdrop, we should anticipate volatility in the Aussie dollar. The weak domestic data, especially with the Reserve Bank of Australia holding its cash rate at 3.85% since early 2025, increases the probability of a future rate cut. Therefore, derivative traders could consider buying puts on the AUD/USD, positioning for a move lower if the RBA signals a more dovish stance.
The unexpected expansion in China’s manufacturing, with the PMI hitting 50.5, should not be ignored as it breaks a recent trend of readings below the 50-point mark. This suggests that stimulus measures from Beijing are finally taking hold, which could support commodity prices. This strength creates a floor for the Aussie dollar, meaning any bearish positions should be managed carefully against this positive external factor.
In the United States, the focus is squarely on upcoming jobs data for clues on Federal Reserve policy. With Fed funds futures currently pricing in over a 60% chance of a rate cut at the next meeting, a weak jobs report would likely accelerate dollar weakness. We see an opportunity in buying short-term call options on gold or puts on the US Dollar Index to prepare for this scenario.
The news of the major Google and Salesforce security breach introduces a specific risk for the technology sector, which has been a market leader. After the Nasdaq 100 hit new highs during the summer of 2025, the sector is vulnerable to profit-taking on negative news. Buying protective puts on tech-heavy indices could be a wise hedge against a potential downturn in the coming weeks.
