In a medium saucepan combine until smooth: milk, apple juice, flour, mustard, onion powder, salt and black pepper. Cook and stir over medium heat until mixture thickens and bubbles. Continue to cook one minute longer.
Remove from heat and add cheese. Stir until the cheese is melted. Transfer to a fondue pot and keep the mixture warm. Serve with bread cubes and assorted vegetables. Tooth picks make for good dipping.