AUD/USD extends the rally to near 0.6550 ahead of China's Caixin Manufacturing PMI release

• AUD/USD edges higher to around 0.6540 in Monday's early Asian session.
• China's factory activity contracts in August 
• Markets expect the Fed to cut the interest rate in the September meeting. 

The AUD/USD pair extends its upside to near 0.6540 during the early Asian session on Monday. Traders ramp up bets for a US interest rate cut by the Federal Reserve (Fed) in the September meeting, which weighs on the US Dollar (USD). China's Manufacturing Purchasing Managers Index (PMI) is due later on Monday. 

Data released by China's National Bureau of Statistics (NBS) on Sunday showed that the country's Manufacturing Purchasing Managers' Index (PMI) rose to 49.4 in August from 49.3 in July. The reading came in weaker than the expectation of 49.5 and marked five consecutive months of decline. The lack of a more pronounced rebound in the manufacturing sector has raised the prospect of economic slowdown, which might undermine the China-proxy Aussie, as China is a major trading partner of Australia. 

Additionally, the NBS Non-Manufacturing PMI climbed to 50.3 in August, versus 50.1 prior and in line with the market consensus. The report noted that extreme weather has disrupted construction and travel, and a worsening downturn in the property market has put an additional drag on activity.

US inflation, as measured by the Personal Consumption Expenditures (PCE), rose in July, indicating that US President Donald Trump's tariffs are working their way through the US economy. However, markets expect the Fed to resume lowering its benchmark interest rate this month. 

Fed Governor Christopher Waller on Thursday reiterated his support for a cut, saying he would entertain a larger move if labor market data continue weakening. The rising Fed rate cut bets and dovish remarks from Fed officials could drag the Greenback lower and act as a tailwind for the pair in the near term.