Corrects sharply to near 0.6450 as spotlight shifts to Jackson Hole

• AUD/USD drops sharply as US Dollar recovers ahead of Jackson Hole.
• Rising deflation risks in China are impacting the Australian Dollar.
• AUD/USD has remained sideways in a 50-pip range for the past week.

The AUD/USD pair faced selling pressure after failing to recapture the psychological resistance of 0.6500 on Thursday. The Aussie asset has dropped to near 0.6450 as risk-sensitive currencies have come under pressure ahead of the Jackson Hole Symposium.

The US Dollar Index (DXY) rebounds strongly after building a base around 103.30 as investors turn cautious about Federal Reserve (Fed) chair Jerome Powell’s commentary. Investors remain mixed about whether Jerome Powell will emphasize keeping interest rates steady for a longer period or hiking interest rates further.

Meanwhile, the Australian Dollar comes under pressure as market participants expect that the Reserve Bank of Australia (RBA) will keep the interest rate policy unchanged in September. Also, rising deflation risks in China are impacting the Australian Dollar, which is a proxy to China’s economic growth.

AUD/USD has remained sideways in a 50-pip range for the past week. Broadly, the asset is forming a Bearish Flag chart pattern on an hourly scale. The consolidation part of the aforementioned chart pattern signifies inventory distribution from institutional investors to market participants. A breakdown of the same will result in the continuation of the bearish trend.

The Aussie asset fails to sustain above the 200-period Exponential Moving Average (EMA), which indicates that investors use the pullback move for a selling opportunity.

Adding to that, the Relative Strength Index (RSI) (14) slips below 40.00, which indicates that the bearish momentum has been triggered.

Going forward, a breakdown below August 22 low at 0.6403 will expose the asset to August low at 0.6364, followed by the round-level support at 0.6300.

In an alternate scenario, a recovery move above the intraday high at 0.6490 will drive the asset toward August 9 high at 0.6571. A breach of the latter will expose the asset to August 10 high at 0.6616.

AUD/USD hourly chart