AUD/USD defends 0.6360 support as Aussie-China trade relations improve

• AUD/USD defends the 0.6360 support as China opens for business with Australia.
• The market mood remains cautious as global economies have been exposed to economic turmoil.
• The resilient US service sector indicates a stable consumer spending momentum that might make inflation more stubborn.

The AUD/USD pair attempts recovery after defending the crucial support of 0.6360 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.

S&P500 futures demonstrate some losses generated in Europe, portraying a risk-off market mood. US equities were heavily sold on Wednesday after upbeat ISM Services PMI indicates that the Federal Reserve (Fed) is expected to keep interest rates higher for a very long period. In spite of US economic resilience, the Fed is widely expected to keep the monetary policy unchanged for the remaining year.

As per the CME Group’s FedWatch Tool, traders see a 93% chance for interest rates to remain unchanged at 5.25%-5.50% in the September policy meeting.

The US Dollar Index (DXY) trades inside Wednesday’s range but is expected to deliver more gains amid a dampened market mood. Investors are funding into the US Dollar to avoid risks of global economic turmoil. The US service sector which accounts for two-thirds of the economy turned out resilient, which indicates a stable consumer spending momentum that might make inflation more stubborn.

Meanwhile, investors await the April-June quarter Unit Labor Costs data, which will provide more clarity about wage growth. The economic data is seen unchanged at 1.6%. Apart from that, commentaries from Fed policymakers are also due.

The Australian Dollar remains in the spotlight this week as the Reserve Bank of Australia (RBA) keeps its Official Cash Rate (OCR) unchanged at 4.10%. Also, the Australian growth rate in Q2 remained better than expectations. The economy grew at a steady pace of 0.4%, a higher-than-expected growth rate of 0.3%. On an annualized basis, Q2 GDP dropped to 2.1% from the Q1 growth rate of 2.4% but remained higher than expectations of 1.7%.