China's inflation data for August showed a notable rebound, with the Consumer Price Index (CPI) rising 0.8% year-over-year, up from 0.5% in July and matching market consensus, according to the National Bureau of Statistics of China [1][2][3][4]. On a monthly basis, CPI inflation was 0.4%, reversing a 0.1% decline in July and exceeding expectations of a 0.3% increase [1][2][3]. The Producer Price Index (PPI) jumped 3.8% year-over-year, outpacing July's 3.5% and beating forecasts of 3.6% or 3.7% [1][2][3][4]. Core CPI, which excludes food and energy, edged up to 1% in August from 0.9% in July [4]. Dong Lijuan, chief statistician at NBS, attributed the inflation rebound to volatile global commodity prices, seasonal food price gains, and rising demand in high-tech industries [4]. Economists noted that much of the PPI pickup was due to base effects and higher commodity costs, rather than genuine household demand, which remains soft [4]. Danske Bank lowered its 2026 GDP growth forecast for China to 4.6% from 4.8%, citing disappointing consumer data, and trimmed its consumer-inflation forecast to 0.8% for the year [4]. Allan von Mehren, chief China economist at Danske Bank, commented that China's domestic economy is stuck in a slump, with weak consumer spending, high savings, and slow employment growth [4]. The youth unemployment rate in urban areas reached 17.9% in July, the worst since August 2025 [4].
Market reaction was muted, with the AUD/USD pair trading around 0.7220-0.7225, just below its highest level since May 14, and up 0.07% on the day [1][3]. Spot prices moved little following the release of China's inflation figures [1]. The AUD/JPY cross pared losses after the data but remained in negative territory around 111.00, as the Japanese Yen gained ground following comments from US Treasury Secretary Scott Bessent and expectations of a Bank of Japan rate hike [2].
The Australian Dollar remains supported by expectations that the Reserve Bank of Australia (RBA) may raise interest rates later this month, driven by stronger-than-expected economic growth and persistent domestic inflation [1]. Meanwhile, the US Dollar is depressed near its lowest level in over two weeks, partly due to a Bank of Japan-inspired rally in the Yen [1][2]. Traders are cautious ahead of upcoming US inflation data, with the US Producer Price Index (PPI) due Thursday and Consumer Price Index (CPI) on Friday, which are expected to provide further cues on the US Federal Reserve's policy path [1].
Technical analysis indicates the AUD/USD pair holds well above the 200-day Simple Moving Average (SMA) at 0.6996, maintaining a constructive near-term bias. Bulls may aim to test a multi-year peak around 0.7270-0.7275, which, if cleared, could lead to additional gains [1]. UOB Group analysts note that downside pressure on USD/JPY will remain as long as USD stays below 156.00, with 154.20 and 152.08 identified as key support levels [2].
CONCLUSION
China's August inflation data exceeded expectations for wholesale prices and met forecasts for consumer prices, but failed to spark significant market moves in the Australian Dollar or related currency pairs. While the AUD remains supported by domestic factors and expectations of an RBA rate hike, persistent weakness in China's consumer demand and high youth unemployment continue to weigh on broader economic sentiment. Market participants are now awaiting US inflation data for further direction.