China Manufacturing Rebound Fuels AUD/USD Gains, Stocks Climb

RatingDog China General Manufacturing PMI Surprises Traders

China’s manufacturing sector caught markets by surprise, unexpectedly expanding in August as domestic demand improved, countering the effect of US tariffs on trade terms.

The RatingDog China General Manufacturing PMI rose from 49.5 in July to 50.5 in August, climbing above the neutral 50 level. Economists had expected a PMI of 49.5.

The August survey highlighted the following key trends:

• Manufacturing output increased for the second time in three months on rising demand.
• New order growth rose at the fastest pace since March.
• New export orders fell slightly, extending the decline to five consecutive months.
• Despite rising new orders and an accumulation of backlogs, manufacturers cut staffing levels for the fifth month.
• Rising raw material costs sent average input costs higher in August, with the rate of inflation the most marked since November 2024.
• Some manufacturers raised output prices, though the increases were modest because of intense competition.
• Average selling prices were flat in August after falling for eight consecutive months.
• Sentiment was the most positive since Q1 on hopes for improving economic conditions and expectations that expansion plans would drive new business.

Expert Views on China’s Manufacturing Sector

RatingDog founder Yao Yu commented:

“Notably, the manufacturing sector is helping the recovery, but this rebound is patchy. With weak domestic demand, potentially overstretched external orders, and slow profit recovery, the durability of the improvement depends on whether exports truly stabilize and whether domestic demand can pick up pace.”

On pricing, Yu added:

“Besides, input prices continued to rise under the “Anti-involution” policy backdrop, and those upstream increases are finally showing up in output prices, breaking an eight-month streak of falling charges. Still, profit trends interpreted from the PMI data showed only a slight recovery and remain under pressure overall.”

Aussie Dollar and Hang Seng Rally on China Data

The forex markets responded promptly to the PMI release. The AUD/USD briefly fell to a post-PMI release low of $0.65367 before climbing to a high of $0.65442. Despite easing back, the pair was up 0.12% at $0.65436 at the time of writing.

The Aussie dollar is exposed to Chinese economic data, given that China accounts for roughly one-third of Australian exports. With a trade-to-GDP ratio of over 50%, stronger demand from China could bolster the Aussie economy. A pickup in economic momentum may dampen expectations of multiple RBA rate cuts, boosting demand for the Aussie dollar.

During July’s press conference, RBA Governor Michele Bullock highlighted the potential impact of China’s trade terms and Beijing’s stimulus plans for the policy outlook, stating:

“Trade terms with China remain crucial. If China bolsters its economy with fiscal stimulus, that could cushion the impact of tariffs on Australia’s economy.”

The Hang Seng Index fell to a post-release low of 25,471 before rising to a high of 25,609, reflecting positive sentiment toward the August data. At the time of writing, the Index was up 2.02% to 25,585.

Trade Talks and Stimulus in Focus

While the manufacturing sector returned to expansion, the continued drop in external demand will keep traders focused on US-China trade talks and Beijing. Last week, China’s chief trade negotiator Li Chenggang met with US officials. Progress toward a trade deal may boost external demand, supporting Beijing’s 5% GDP growth target for 2025.

Meanwhile, stalled trade talks and lackluster domestic demand may pressure Beijing to introduce more policy measures to boost domestic demand. AUD/USD and the Hang Seng Index could benefit from new measures. However, Beijing’s silence on stimulus and weakening external demand could affect demand for the Aussie dollar and Hong Kong-listed stocks.

Discover strategies to navigate this week’s market trends here.