Australian Dollar remains stronger as China data beats forecasts

The Australian Dollar (AUD) continues to strengthen for the second day in a row, trading around 0.6970 against the US Dollar (USD) during Asian trading hours on Monday. This upward trend is attributed to Australia's close trading partner, China, releasing economic data that surpassed market expectations. China's economy demonstrated a faster growth pace in the third quarter, with its Gross Domestic Product (GDP) growing by 4.5% year-over-year.

This marked an acceleration from the 4.3% growth seen in the previous quarter and exceeded the market consensus forecast of 4.4%. On a quarter-over-quarter basis, China's economy expanded by 1.2% in Q3, surpassing expectations of 1.1%. The stronger-than-anticipated economic performance was further bolstered by robust activity data for September.

Chinese retail sales surged by 1.1% year-over-year, significantly outpacing the 0.5% growth expected by analysts and accelerating from the 0.4% growth in August. Industrial production also showed momentum, increasing 5.5% year-over-year in September, surpassing the 5.4% forecast and the 5.2% growth in the previous month. The AUD/USD pair gained further support as the US Dollar (USD) faced challenges due to fading expectations of a Federal Reserve (Fed) rate hike in October.

Fed Chairman Kevin Warsh, during a recent speech at an International Monetary Fund event, expressed that he does not pre-judge interest-rate decisions, adding no clear indication as to whether the central bank will raise or hold short-term rates at its upcoming October 27–28 meeting. This shift in market sentiment, following Warsh's remarks, has led to a reduction in traders' expectations for a rate increase.

Currently, the CME FedWatch Tool indicates an 83.9% probability that the Fed will keep interest rates unchanged during the October meeting, a substantial increase from the 49% chance priced in a month prior.