AUD Surges on RBA Hawkish Bias as China Economy Shows Signs of Stabilisation

The Australian Dollar (AUD) has been making steady gains against the US Dollar (USD) since early July, driven by the Reserve Bank of Australia's (RBA) hawkish bias and sticky domestic inflation. The AUD/USD pair is now just pips away from the key 0.7200 barrier.

The RBA has maintained a cautious but hawkish stance, with officials warning that upside inflation risks may materialise. This has led to expectations of a tightening of monetary policy by around 4 basis points by year-end.

However, China's economy is showing signs of stabilisation, rather than being a tailwind for the Australian economy as it once was. The country's trade balance has improved, with a surplus of $125.62 billion in June, but business activity gauges have been disappointing.

The AUD's resilience is also due to its solid domestic demand and decent economic growth figures. But the labour market has tempered some optimism, with the Unemployment Rate ticking higher to 4.5% in July.