The S&P ASX 200 index is loitering at its all-time high ahead of the first Reserve Bank of Australia (RBA) decision of the year. It closed at A$7,525, a few points below its all-time high of A$7,655. It has soared by ~17% from its lowest point in 2022, meaning it is approaching its bull market. The AUD/USD exchange rate, on the other hand, dropped to 0.6892, ~3.6% below its year-to-date high.
RBA decision ahead
Last week was a busy week for the global financial market as central banks like the Federal Reserve, European Central Bank (ECB), and Bank of England (BoE) delivered their decisions. They both continued with their hiking cycle, with the Fed downshifting for the second straight month as we wrote here. The US also published red-hot jobs numbers.
The ASX 200 index and the AUD/USD price will react to the upcoming RBA interest rate decision scheduled for Tuesday morning. Economists polled by Reuters expect that the central bank will continue with its tightening cycle in a bid to fight the soaring inflation.
The bank will likely hike by 0.25%, bringing the official cash rate to 3.25%, which is still lower than the US rate of between 4.5% and 4.75%. Most importantly, the bank will likely point to a pause in further interest rates since inflation seems to be easing.
A dovish tone by the RBA will be net positive for the ASX 200 index since most companies are seeing a strong increase in interest expense. Another catalyst for the ASX 200 index is the latest approach of Newcrest Mining by America’s Newmont Mining. The deal will continue the consolidation process that has happened in the gold mining sector.
The AUD/USD price made a bearish breakout after the strong non-farm payrolls data. It crashed and retested the support level at 0.6892 (December 13 high). Also, it moved below the lower side of the ascending channel shown in black. The 25-day and 50-day moving averages (MA) made a bearish crossover pattern.
Therefore, while the outlook of the Australian dollar to USD is bearish, we can’t rule out a situation where it pares back some of these losses. Besides, the pair has become oversold and it has already retested the support at 0.6892.
AUD/USD chart by TradingView
ASX 200 forecast
The ASX 200 index has been in a strong bullish trend in the past few months. On the 4H chart, the pair formed a shooting star pattern on February 3. In price action analysis, this pattern is usually a bearish sign. It is also slightly above the 50-period moving average while the RSI has moved slightly below the neutral point at 40. Therefore, the S&P ASX 200 index will likely slip to about A$7,450 after the latest RBA decision.
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