AUD/USD maintains its upward trajectory, bolstered by a robust Australian Dollar that finds support from significant economic data published by its principal trading partner, China. China’s economy in the second quarter expanded by 0.9% on a quarter-on-quarter basis, a decline from the 1.3% growth observed in the first quarter, yet aligning with market expectations. The US Dollar faces challenges following weaker US inflation data, which has sparked optimism regarding a potential shift towards a less aggressive approach by the Fed. AUD/USD extends its gains for the second consecutive day, trading around 0.6980 during the Asian hours on Wednesday. The pair holds gains as the Australian Dollar remains stronger following the release of key economic data from China, Australia’s close trading partner.
China’s economy experienced a quarter-on-quarter expansion of 0.9% in the second quarter of 2026, a deceleration from the 1.3% growth observed in the first quarter, yet aligning with market expectations. Gross Domestic Product experienced a month-over-month growth of 4.3% in Q2, a decrease from the 5.0% expansion recorded in the preceding quarter. This annual figure fell short of Wall Street expectations, registering below the market consensus forecast of 4.5%. China’s annual June Retail Sales increased by 1.0%, surpassing the expected decline of -0.1% and the previous decrease of -0.6%. Industrial Production registered a growth of 5.3%, surpassing the estimated figure of 4.6% and the previous month’s reading of 4.5%. Meanwhile, Fixed Asset Investment experienced a decline of 5.7% year-to-date in June, contrasting with the anticipated decrease of 4.9% and a prior reduction of 4.1% in the previous reading.
Additionally, the AUD/USD pair gains ground as the US Dollar struggles following softer-than-expected US inflation data, which fuelled hopes that the US Federal Reserve might adopt a less hawkish monetary stance. The US Consumer Price Index inflation moderated to 3.5% year-over-year in June, a decline from the three-year peak of 4.2% recorded in May and significantly lower than the market consensus of 3.8%. In June, the headline CPI experienced a monthly decline of 0.4%, marking a significant departure from the 0.5% increase observed in May.
Meanwhile, Fed Chair Kevin Warsh reiterated the central bank’s commitment to restoring price stability during congressional testimony on Tuesday but refrained from signalling a more aggressive policy stance. However, as renewed tensions between the US and Iran elevate oil prices, inflation concerns persistently occupy investors’ attention. The CME FedWatch Tool suggests that markets are currently estimating a probability of approximately 50% for a Federal Reserve rate increase in September.