As the market responded to the Reserve Bank of Australia’s (RBA) latest interest rate announcement, the ASX 200 index fell on Tuesday. The ASX 200 index, which measures the largest companies in Australia has fallen to $8375. This is a drop of 1.83% compared with its previous high.
RBA keeps interest rates the same
After the RBA left rates at the same level as they were in the previous 12 months, the ASX 200 Index fell.
The RBA, unlike other central banks around the world, has kept a hawkish tone citing a stubbornly high rate of inflation in Australia.
The Consumer Price Index (CPI), the main measure of consumer prices, dropped by 2.8% from Q2 to Q3. The Consumer Price Index (CPI) dropped from 3.8% in Q2 to 2.8% in Q3.
From 3.9% to 3.5%, the trimmed average inflation rate, which does not include the volatile energy and food prices, has decreased. This meant that the RBA target for inflation of 2.0% was far exceeded. This statement stated:
While headline inflation has dropped and is expected to remain low for some time, the underlying inflation rate, which remains high, provides a better indication of inflation’s momentum. The Board’s forecasts are consistent with recent data, including inflation rates and economic conditions. It is also gaining confidence in the Board that inflation will continue to move towards its target.
The bank’s last decision for the year hinted at the possibility of a first-quarter rate reduction. Financial assets, such as stock indexes, have historically performed well when central bank interest rates are cut.
This rate announcement came as the Australian dollar was falling. The AUD/USD exchange rate fell from a high of 0.6942 for the entire year to a low 0.6375. That’s an 8.2% decline.
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RBA’s decision came at a time when Australian shares have been doing well, the ASX 200 has risen by nearly 10% in this past year. The ASX 200 has not performed as well as other global major indices such the S&P 500 or Nasdaq 100, which are up by double-digits.
The majority of ASX 200 companies have performed well in this past year. The best performing company is Mesoblast which makes cellular medicine. Its stock has risen by more than 400% in the past year.
Indexes have been helped by technology companies. Zip, a leader in the industry of buy now pay later (BNPL), has risen 366% over this past year. The growth of Zip is similar to that experienced by other BNPL firms like Affirm and Klarna.
Appen is a technology company that specializes in data and AU. This year the demand for AI-based solutions has risen by 240%. Nuix Holdings and Netwealth Group are the other companies that made up this index.
Australian banks performed well in this past year. This has raised concerns over their value.
Westpac Banking’s stock has increased by 47% in the past year. Commonwealth Bank of Australia shares also jumped 40%. Stocks of the National Bank of Australia have risen by 23% in this past year. ANZ, on the other hand, has only risen by 13%.
Australian mining companies underperformed this year’s market due to the fall in commodity prices. BHP Group shares fell 17% while Fortescue Metals’ stock dropped almost 30%. Rio Tinto’s shares are down by 8.10%.
ASX 200 Index Analysis
Source: TradingView
In the last few months, the ASX 200 has shown an upward trend. The black channel shows that it has formed an upward trend. It is currently a few percentage points below its upper edge. The channel was formed when the index made a series higher highs, and also higher lows.
The ASX 200 has remained over the Exponential Moving Avg. (EMA) of 50 and 200 days. The MACD lines have also made a negative crossover pattern. Meanwhile, the Relative Strength Index has been pointing downward.
The index is likely to waver and resume its upward trend. If the index rises over the high for the current year of $8.532, then more gains are confirmed. The bullish outlook will be invalidated if the index drops below the moving average of 50 days.
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