AUD/USD advances above the 0.6420 mark amid the weaker USD, US soft landing hope

• AUD/USD gains momentum above 0.6420 amid the selling pressure in USD.
• Markets have been priced in the possibility of a 93% rate hold at the September Fed meeting.
• The easing fear of China’s deflation boosts China-proxy New Zealand Dollar ahead of the US inflation data.
• Investors will monitor the US Consumer Price Index (CPI), Australian employment data due later this week.

The AUD/USD holds above the 0.6400 area during the Asian session on Monday. The uptick of the Aussie (AUD) is supported by the weakening of the US Dollar and the easing fear of China’s deflation. The pair currently trades near 0.6425, up 0.75% on the day.

After the G20 Summit, US Treasury Secretary Janet Yellen conveyed more optimism that the US could control inflation without damaging the employment market. Yellen also said on Sunday that every gauge of inflation is declining and there were no massive wave of layoffs. Chicago Fed President Austan Goolsbee outlined the central bank's goal of leading the economy into a "golden path." This route represents a scenario in which inflation falls without causing a recession. Furthermore, Fed New York President John Williams said last week that highlighted the decline in inflation and an improving economic balance.

According to the CME FedWatch Tool, the markets have been priced in the possibility of a 93% rate hold at the September meeting and a 43.5% chance of a rate hike at the November meeting. Adding to this, the upbeat US economic data last week lends support to the higher for longer interest rate narrative in the US. This, in turn, might lift the US Dollar (USD) and cap the upside of the AUD/USD.

At the recent policy meeting, the Reserve Bank of Australia (RBA) maintained interest rates at 4.10% for the third consecutive month. However, RBA Governor Philip Lowe warned that additional tightening may be needed to control inflation. He added in a speech that he had focused on the possibility that wages and profits could exceed levels consistent with inflation returning to target in late 2025 while mentioning that the Unemployment Rate can sustain near 40-year lows and wage growth is strong.

Additionally, Chinese inflation figures improved in August, which boosted the China-proxy New Zealand Dollar against the Greenback. The Chinese Consumer Price Index (CPI) rose 0.1% YoY, from a 0.3% drop in the previous month, compared to the 0.2% rise anticipated. The monthly figure was 0.3% as expected. Finally, the Producer Price Index (PPI) fell 3.0% YoY from 4.4% in July, in line with market consensus.

Looking ahead, the Australian Westpac Consumer Confidence for September will be due on Tuesday. Market players will shift their attention to the US Consumer Price Index (CPI) for August on Wednesday. The monthly figure is expected to rise by 0.5%, while the core monthly figure is expected to remain at 0.2%. On Thursday, Australia’s employment data and US Retail Sales will be in the spotlight. These events could trigger the volatility and give a clear direction to the AUD/USD pair.