AUD/USD seems well-supported above 0.6400 despite solid recovery in US Dollar

• AUD/USD defends immediate support of 0.6400 despite the strengthening of the US Dollar.
• A surprise upside in the US inflation could improve the US Dollar’s appeal significantly.
• The Australian Dollar will remain in action ahead of the Aussie Employment report.

The AUD/USD pair remains sideways above the round-level support of 0.6400 in the early European session. The upside in the Aussie asset seems restricted due to a solid recovery in the US Dollar while the downside seems supported as Aussie-Sino trade relations improved.

S&P500 futures posted decent losses in the London session, portraying caution among market participants ahead of the United States Consumer Price Index (CPI) data for August, which will be published at 12:30 GMT. The US Dollar Index (DXY) rebounds strongly above 104.80 as the market mood dampens due to the rising risks of a global slowdown.

For August inflation data projections, investors anticipated that headline inflation expanded at a higher pace of 0.5% vs. July’s reading of 0.2%. Thanks to the global oil rally, which lifted gasoline prices and elevated the burden on households.

A surprise upside in inflation could improve the US Dollar’s appeal significantly and boost hopes for one more interest rate increase by the Federal Reserve (Fed) in the last three monetary policy meetings of this year.

As per the CME Fedwatch Tool, traders see a 93% chance for interest rates to remain unchanged at 5.25%-5.50% in September. For the rest of the year, traders anticipate almost a 54% chance for the Fed to keep the monetary policy unchanged.

The Aussie-Sino trade relationship strengthened after China’s Premier Li Qiang cited that the economy is willing to work with Australia to jointly safeguard peace and stability in Asia-Pacific. Opening of the Chinese economy to Australia will provide it with a larger market to expand operations.

The Australian Dollar will remain in action ahead of the Aussie Employment report, which will be published on Thursday. As per the expectations, the Australian economy recorded a fresh joining of 24.3K employees. In July, the labor force shed by 14.6K. The Unemployment Rate is seen declining to 3.6% vs. the July’s reading of 3.7%.