AUD/USD holds above 0.6700, all eyes on Fed rate decision

• AUD/USD trades with mild gains around 0.6705 in Monday's early Asian session. 
• The two-day FOMC meeting ends Wednesday with an expected rate cut.  
• The Chinese Retail Sales and Industrial Production came in worse than expected.

The AUD/USD pair posts modest gains near 0.6705 during the early Asian session on Monday. The uptick of the pair is supported by the weakness of the US Dollar (USD). However, the concerns about the economic slowdown in China might cap the upside for the China-proxy Australian dollar (AUD). All eyes will be on the US Federal Reserve (Fed) interest rate decision on Wednesday. 

Markets are largely split on whether the US Fed will cut rates by 25 basis points (bps) to a range of 5.0% to 5.25% or by 50 bps at its upcoming monetary policy meeting. According to the CME FedWatch Tool, the markets have priced in nearly 49% probability of a Fed larger rate cut, a significant jump from a 28% chance one day prior. Investors will take more cues from the FOMC Press Conference for the outlook of the US interest rate. If Powell indicated to ease more aggressively, this could exert some selling pressure on the Greenback and create a tailwind for AUD/USD. 

On the other hand, the disappointing Chinese economic data released on the weekend might weigh on the Aussie as China is Australia's largest trading partner. Data released by the National Bureau of Statistics (NBS) on Saturday showed that Chinese Retail Sales rose 2.1% YoY in August from 2.7% in July, while Industrial Production increased 4.5% YoY in the same period versus 5.1% prior. Both figures came in below the market consensus. 

On Thursday, the Australian employment data will be released. The Reserve Bank of Australia (RBA) Assistant Governor (Economic) Sarah Hunter said last week that "the labor market is still tight relative to full employment." and the RBA's stance is that "further falls in vacancies can still occur alongside a relatively modest increase in the unemployment rate. The remarks support the RBA's case against near-term rate cuts, which might lift the AUD against the USD.