Fin-X Weekly 1st September 2025

The US dollar weakened after Jerome Powell earlier signalled a less restrictive Fed stance and President Trump attempted to dismiss a Fed governor, despite strong GDP and firm inflation readings.

Australian CPI surprised on the upside, lifting the dollar and tempering expectations of rapid RBA rate cuts, while equities posted solid sales growth but weaker earnings.

Nvidia’s results underscored AI momentum. But the outlook raised concerns about slowing AI investment. Geopolitical frictions over China have added to uncertainty for the semiconductor industry.

This week’s focus will be on Australian Q2 GDP, Chinese PMIs, and US labour market data. US markets will be closed tonight for Labour Day.

The US dollar weakened in the week following the Jackson Hole gathering, where Federal Reserve Chair Jerome Powell suggested the central bank may be preparing to shift towards a less restrictive monetary stance. Powell’s comments were interpreted as opening the door to rate cuts later this year, weighing on the US dollar despite firm data.

Revisions to economic growth suggested some resilience in the US economy, with second-quarter GDP upgraded from an annualised pace of +3.0% to +3.3%. Inflation measures were in line with expectations: headline PCE inflation rose by +2.6% compared to last year, while core PCE increased by +2.9%, still some way above the Fed’s 2.0% target.

President Trump’s attempt to remove Federal Reserve governor Lisa Cook added to the pressure on the dollar, with the President claiming he had “sufficient cause” to dismiss her over allegations related to mortgage loan applications. Cook has contested the decision in court, and Scott Bessent repeated calls for Powell to conduct an internal review.

In parallel, the administration is exploring ways to expand its influence over the Fed’s 12 regional banks, including a review of how presidents are vetted and appointed. Because regional leaders are not Senate-confirmed, the Board of Governors is scheduled to renew the current roster in February.

Former officials warned that such moves risk undermining the institution’s credibility. Former Fed Vice Chair Lael Brainard cautioned that reshaping the FOMC could fuel inflation and lead to higher long-term rates, while former Fed Chair Janet Yellen described the president’s approach as threatening American credibility with investors.

Further friction emerged on trade policy. A federal appeals court ruled that most of President Trump’s global tariffs exceeded his authority, declaring them illegal. While the tariffs remain in place pending further review, the decision prolongs uncertainty, with the president pledging to take the matter to the Supreme Court. Markets are likely to face renewed turbulence as the legal process unfolds.

In contrast, the Australian dollar strengthened after domestic data came in stronger than expected. Headline CPI rose +2.8% yoy in July, outpacing forecasts of +2.3%. Housing inflation climbed +3.6%, after a +13.1% increase in electricity prices over the year to July. The effect of delayed rebates in New South Wales and the ACT also boosted the monthly outcome. The firmer print, coupled with an acceleration in private credit growth, prompted investors to scale back expectations of near-term Reserve Bank easing, with investors now anticipating a somewhat slower pace of cuts, even though the figures add pressure to household budgets.

Local equity markets also held firm. As reporting season concluded, annual sales growth across the S&P/ASX 300 was estimated at +4.0%. However, earnings fell by -4.6%, highlighting the impact of margin pressures.

Global equities were adversely impacted by weakness in semiconductors after Nvidia’s quarterly results underscored the scale of AI-driven investment but also raised doubts about sustainability. Data centre revenue came in at US$ 41.1 billion, slightly below estimates of US$ 41.3 billion. Despite this, revenue from its Blackwell chips rose +17% above the prior quarter, and the company announced a US$ 60 billion buyback. Shares nevertheless fell -2.1% over the week, with investors concerned that AI growth may be slowing. Nvidia’s forecast for third-quarter revenue at US$ 54 billion, plus or minus 2%, compared with expectations of US$ 53.5 billion.

Geopolitical risk added another layer, with China seeking to accelerate domestic development of AI hardware. Reports suggest that national champions, such as Huawei, are receiving increased support to reduce their reliance on US suppliers.

The US administration has moved to take 15% of Nvidia’s H20 chip turnover in China, following its earlier announcement of a 10% stake in Intel. Nvidia signalled that the intervention could end up in litigation, indicating that the move was not a “done deal”. AMD’s Chinese revenues have also been targeted, further clouding the outlook for US tech exporters.

Chinese economic data showed modest improvement. Industrial profits contracted by an annual -1.5% in July, a slower pace than June’s -4.3% decline. The August official non-manufacturing PMI edged up to 50.3, indicating weak expansion, while manufacturing remained in contraction at 49.4. The figures confirmed that growth momentum is still fragile despite policy support.

Tensions over trade policy also spread beyond the US-China axis. Mexico announced plans to raise tariffs on Chinese imports as part of its 2026 budget proposal, citing the need to shield local industries and responding to pressure from Washington. Meanwhile, India reported annual GDP growth of +7.8% in the June quarter, comfortably above consensus estimates of +6.7%. The robust performance highlighted India’s role as a key driver of global growth, though it could come under strain if the US proceeds with mooted 50% tariffs on Indian exports linked to Russian oil imports.

Japan’s economic indicators were less encouraging. Retail sales rose +0.3% yoy in July, extending a slowing trend, while industrial production slipped to -0.9% yoy. Consumer prices also moderated, with Tokyo CPI decelerating from +2.9% yoy to +2.6% yoy, though the labour market tightened as unemployment fell from 2.5% to 2.3%. The mix of softer activity and lower inflation keeps pressure on the Bank of Japan to maintain an accommodative stance, even as the yen remains under downward pressure.

There is a full calendar of releases this week. In Australia, Q2 GDP will be published on Wednesday, with consensus forecasts of + 0.5% qoq, equivalent to+1.6% yoy. Household spending is forecast to have risen by an annual +5.0% in nominal terms.

In China, the latest RatingDog (formerly Caixin) PMIs will be released against the backdrop of the Shanghai Cooperation Organisation summit in Tianjin.

The JOLTS survey, Beige Book and ISM indicators are all due after today’s American public holiday. But Friday’s labour report will be decisive in shaping expectations for a September Fed cut. Unemployment is expected to tick back up to 4.3%. But investors will be closely watching for any further deterioration in the monthly payrolls after July’s substantial negative revisions.

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