AUD/USD defends 0.6360 support on improving China-Australia trade relations

• AUD/USD defends 0.6360 support as China opens for business with Australia.
• Market sentiment remains cautious as global economies have been exposed to economic turmoil.
• The resiliency of the US service sector signals a steady boost in consumer spending that could make inflation more tenacious.

The pair AUD/USD tries to recover after defending crucial support at 0.6360 after Chinese Premier Li Qiang quoted that the economy is willing to work with Australia to jointly safeguard peace and stability in the Asian session. The opening of the Chinese economy to Australia will provide it with a larger market to expand its operations.

S&P 500 futures show some losses generated in Europe, portraying a risk-off state in the markets. US stocks were sold hard on Wednesday after the upbeat ISM services PMI indicated the Federal Reserve (Fed) is expected to keep interest rates rising for a very long period. Despite the resilience of the US economy, the Fed is expected to keep monetary policy unchanged for the remainder of the year.

According to CME Group’s FedWatch tool, traders see a 93% chance that interest rates will remain unchanged at 5.25%-5.50% at the September policy meeting.

The Dollar Index (DXY) is trading range bound on Wednesday, but is expected to offer more gains amid subdued market sentiment. Investors are taking refuge in the dollar to avoid the risks of global economic turmoil. The US service sector, which accounts for two-thirds of the economy, was resilient, signaling steady momentum from consumer spending that could make inflation more tenacious.

Meanwhile, investors await Unit Labor Cost data for the April-June quarter, which will provide more clarity on wage growth. The economic data is considered unchanged at 1.6%. Also, comments from Fed officials are awaited.

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%. Furthermore, the Australian growth rate in the second quarter remained above expectations. The economy grew at a sustained pace of 0.4%, a higher than forecast rate of 0.3%. In annualized terms, second-quarter GDP dipped to 2.1% from the first-quarter growth rate of 2.4%, but was still above expectations of 1.7%.