During Wednesday's early Asian session, the AUD/USD pair fluctuates within a narrow range around 0.6425. In the meantime, the US Dollar Index (DXY) is fluctuating around 104.50 after retreating from the 105.00 region. Ahead of the key US inflation data, markets become cautious.

The Australian consumer confidence index fell into negative territory in August, limiting the Australian dollar's upside potential. Australia's Westpac Consumer Confidence dropped 1.5% to 79.7 in September, following a 0.4% decline in the previous reading, according to data released on Tuesday. The numbers increased concern regarding the effects of China's economic decline.

In addition, US Commerce Secretary Gina Raimondo is scheduled to meet with the CEOs of major American corporations this week, two weeks after her trip to China, where she expressed concern over the business climate. The renewed trade war tensions between the United States and China may exert some selling pressure and act as a headwind for the Australia Dollar (AUD), which represents China.

On the other hand, the higher for longer interest rate narrative in the United States may strengthen the US Dollar (USD) versus the Australian Dollar (AUD). Traders anticipate a 93% chance that interest rates will remain constant in September at 5.25%-5.50% and a 56% chance that the Fed will hold its current monetary policy unchanged, according to the CME Fedwatch Tool.

On Wednesday, however, the August US Consumer Price Index (CPI) will be the highlight. The annual rate is projected to increase from 3.2% to 3.6%, while the core rate is projected to decrease from 4.7% to 4.4%. The data could cause volatility in the foreign exchange market and affect expectations regarding the Federal Reserve's monetary policy.

In the coming hours, market participants will closely monitor the US Consumer Price Index for August. The stronger-than-expected data could convince the Fed to increase interest rates further. On Thursday, the focus will transfer to the August US Producer Price Index (PPI) and Australian employment data. Traders will take cues from these numbers and look for opportunities to trade the AUD/USD pair.

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