Investors will focus this week on Australia’s central banks decision, which is expected to affect the Australian dollar and ASX 200. The AUD/USD rate hit a new high at 0.6838. This is its highest level since December 28, and 7.28% higher than its previous low point for the year.
The blue-chip ASX 200 Index also surged up to an all-time high of A$8,253, which brings the gains for the entire year to well over 7%.
RBA interest rate decision
This week, the RBA’s monetary policy announcement will be Australia’s biggest macro-news.
The majority of economists think that this bank’s tone will be significantly different from the Federal Reserve.
The RBA won’t cut rates but will instead leave them unchanged, hinting at an increase later in the year or as early as 2025.
The latest economic data showed the labor market in the United States is performing well. Its unemployment rate, which remained at 4.2% last week, was unchanged. In August, the economy added over 487.5k new jobs. This was higher than expected and the participation rate remains at 67.1%.
The biggest problem in Australia isn’t the job market, but rather inflation. It has been stubbornly high this year. Recent quarterly data on inflation showed the CPI to have risen from 2.0% to 3.5%. This is much higher than RBA target.
Most analysts still believe the RBA bluffs when they threaten to raise interest rates. The bond market actually believes the RBA will begin cutting interest rates in the second half of this year.
The yield on the 10-year bond was trading at 3.95 percent, a drop from its year-to date high of 4.55 percent. The five-year rate also fell from more than 5% to just 3.85% a few short months ago.
In anticipation of a rate cut, Australia’s leading banks, such as Westpac, ANZ and CBA, have begun to reduce their lending rates.
RBA won’t want to be the one central bank raising rates while others are cutting. The Federal Reserve cut interest rates last week by 0.50% to create a “soft landing”. The Bank of England, the Swiss National Bank and the European Central Bank have also cut rates in this year.
Another concern of the RBA is that an increase in interest rates would hurt a slowing economy. One of the key issues is China’s stagnation, as it buys most Australian commodities.
The prices of many commodities sold in Australia, such as coal and ore iron have also dropped dramatically this year.
ASX Banks in Focus
This week, the ASX 200 will focus on several companies. Banks like ANZ CBA and Westpac will have the most impact, as they are all companies that have seen surges this year. Banks are usually the ones most affected by rates, due to their net interest margin.
The margin increases when interest rates rise. Recent signs suggest that capital has been displaced as Australians have switched to high-yielding funds.
Rupert Murdoch’s REA Group is the other ASX top company that you should be watching this week. REA Group has been working on acquiring Rightmove, a UK-based property listing agency. Media reports claim that Rightmove rejected the bid.
ASX 200 Index Forecast
On the daily chart we can see the S&P/ASX 200 Index has risen to an all-time high of A$8,253. The rally occurred as global indices such as the S&P 500, Nasdaq100 and other indices reached new highs.
ASX 200 has retreated and pulled back below the important support level of A$8,166. This was its highest point in August 1. The index has been above the moving averages.
There are indications that the pattern has changed to a negative engulfing, which could indicate further downside in this week. This will cause it to retest its support level of $8,000. On the other hand, in the long run, it is likely that the index will rebound and test the record high.
Technical Analysis of the AUD/USD
After bottoming out at 0.6351 back in August, the AUD/USD has seen a bullish run. The pair has increased by more than 7%, and hovers at an important support point of about 0.6880.
It has now risen over the moving average of 50 days and is approaching the critical resistance level at 0.6870 – its high point from December 2013. The Stochastic Oscillator is also at an overbought position.
The outlook for the pair is therefore bullish, as long as the bulls continue to move over the resistance level at 0.6837 – its high point from last week. This will move it up to 0.6870, the next level.
As updates occur, this post on AUD/USD and ASX200 in Focus ahead of RBA Rate Decision may be updated.
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