The Gunners have responded well to the £24million sale of captain Robin van Persie to Manchester United with an unbeaten start to the new campaign, which has included a battling Champions League victory in Montpellier earlier this week.
But Wenger insists his squad - boosted by the summer arrivals of Santi Cazorla, Olivier Giroud and Lukas Podolski - can step up a level as they prepare for a stern test of their ambitions at the Etihad Stadium.
"I have no doubt about the desire and hunger of my squad. Tomorrow [Sunday] will just tell you how strong we are at the moment," said Wenger.
"I believe we are quite strong, but we have some room for improvement.
"All is not perfect, but the signs we are giving are very good and very strong.
"The hunger is massive in this squad. They want to do well, they are focused and they want to win.
"We want to continue to improve."
Wenger accepts that while the title may not be on the line this weekend, the chance to strike a mental blow to City's aspirations of a successful defence of their crown is.
"It is the beginning of the championship and you know that this game can have a big influence on the belief of both teams, so who will have the upper hand has a psychological advantage," Wenger said.
"On that front it's a very exciting game and while it is still very early in the season, already it is a very important game for me."
Wenger is expecting another close contest at the top of this season's Barclays Premier League, no matter what the leading sides may achieve in Europe. City went down 3-2 away at Real Madrid in midweek.
"Manchester City didn't win the championship last year by 10 points," Wenger said.
"It was in the last two minutes, so it was very, very tight, and I think it will be very tight again this year."
Midfielder Mikel Arteta can also see what an impact beating City could have on the rest of Arsenal's campaign.
He told Arsenal Player: "It is still too early, whatever happens on Sunday, but if you get points there, and you win then you make a bit of a statement.
"It grows the confidence of the team and everyone around it who believes we are as good as anyone in this league. These are good places to show that."
The Spanish midfielder added: "It is a huge test for us. We have been playing well.
"We played really good when we went to Liverpool - that's a tough place to get three points, but we did it.
"This is another test. Man City haven't lost at home for a while. "We know it's going to be difficult, but I am sure they will be thinking the same thing."
Arsenal must do without goalkeeper Wojciech Szczesny because of an ankle problem.
Vito Mannone has proved an able deputy so far this season, keeping two clean sheets.
Wenger said of the Italian: "Football is down to competition and performances. It is a good opportunity for Mannone to show the quality that I believe he has.
"The games, up until now, indicated he has that."