AUD/USD Forecast: The key to further gains lies at 0.6400

AUD/USD Current Price: 0.6369

• Australia's strong retail sales raise expectations of another rate hike from the RBA. 
• US Dollar slides as risk sentiment improves. 
• The AUD/USD rises above the 20-day SMA targets the 55-SMA.

The AUD/USD rose on Monday for their third consecutive trading day, extending its recovery from monthly lows. It peaked at 0.6385 and then pulled back modestly. It remains supported by tightening expectations from the Reserve Bank of Australia (RBA) and an improvement in risk sentiment on Monday that weakened the US Dollar.

Retail Sales data from Australia surprised to the upside in September, with a 0.9% increase, exceeding the expected 0.3% gain. August numbers were revised higher from 0.2% to 0.3%. This data supports the view of many analysts that the RBA will raise the key interest rate by 25 basis points at next week's meeting. 

The increased expectation of tightening from the RBA has been boosting the Aussie during recent sessions, contributing to the rebound in AUD/USD and AUD/NZD, with the latter reaching its highest level since June, above 1.0900. On Tuesday, Private Sector Credit data is due, and on Friday, more Retail Sales data will be released with the quarterly report. Also relevant for the Aussie on Tuesday are the Chinese PMI figures, which are expected to show improvement with both sectors remaining in expansionary territory.

The US Dollar lost ground on Monday across the board amid an improvement in market sentiment, despite a modest increase in US Treasury yields ahead of the FOMC meeting. However, it's not all about the Fed, as market participants await critical employment data, including the ADP on Wednesday and the Nonfarm Payrolls on Friday. On Tuesday, the Employment Cost Index is due.

The Greenback is losing momentum but remains near monthly highs overall. Fundamentals favor the US Dollar, but the fact that market expectations do not anticipate further rate hikes from the Fed limits the upside.

AUD/USD short-term technical outlook

The AUD/USD has risen above the 20-day Simple Moving Average (SMA) and is approaching the 55-day SMA, which acts as a dynamic resistance level at 0.6397. If the pair breaks and consolidates above this level, it would strengthen the Aussie's outlook. On the other hand, a daily close below 0.6280 would open the doors to further losses.

On the 4-hour chart, technical indicators point to potential further gains. However, the Relative Strength Index (RSI) is flattening slightly below 70, and Momentum is turning downwards. Nonetheless, the Moving Average Convergence Divergence (MACD) indicates more strength ahead. The immediate resistance stands around 0.6380, and a test of 0.6400 seems likely. The mentioned area has acted as a strong barrier that halted the upside movement over the past two weeks. The positive sentiment will remain intact if the price stays above 0.6335. A downside break would signal weakness and leave the pair vulnerable to a decline towards 0.6300.

Support levels: 0.6355 0.6330 0.6295 0.6280 

Resistance levels: 0.6400 0.6445 0.6475 

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