With the Reserve Bank of Australia due to deliver its monetary policy decision on Tuesday, the Australian 200 index (ASX: S&P/ ASX 200) trades on a knife edge after successfully closing a sixth consecutive trading day in the green. At three-week highs, the index is set for an exciting Tuesday open, with the interest rate decision looming as a potential driver of directional price action.
The market is expecting a rate pause, confirmed by statistics that indicated a slowdown in Australian economic activity. Last week, their CPI indicator signaled inflation slowing down to an 8-month low, while monthly retail sales on Monday rose by only 0.2% from the 1.8% rise in the previous month. The Judo Bank Manufacturing PMI dropped to 49.1 from the previous 50.5 to signal a slowdown in the manufacturing sector. Still, the index closed 0.6% higher on Monday, led by the announcement from OPEC+ to cut oil production levels in 2023, which triggered an energy sector rally that trickled through to the index.
Technical
On the 1D chart, the index reached a high on the 6th of February, 2023, after which a significant selloff led to a bottom at around 6,897 on the 21st of March. Since the bottom, the index has retraced close to the 50% Fibonacci retracement at 7,229.5 to where it currently trades at 7,223.0. This level is also teasing a breakout from the downtrend, which could see a convergence with the 50-day moving average.
If the RBA decides to pause its rate hike cycle, the index could break through the 50% Fibonacci retracement on a path toward the golden ratio of 61.8% at 7,307.9. The convergence with the 50-day moving average could signal a reversal of the longer trend toward bullish, which could shift focus toward resistance at 7,377.6 and 7,419.5.
On the other hand, if the RBA opts for another hike, the market could respect the downtrend, which could force the index back to 7,193.8 and 7,151.1 in a rejection of the bullish uptrend. In this case, the longer-term bearish trend could persist for now.
Summary
The Australian 200 index is at a crucial point in the broader outlook for its long-term trend. If the RBA decides to pause their rate hikes, the index could see another green session toward 7,307.9 and 7,377.6. However, a 25bps hike could result in a shift back toward 7,193.8 and 7,151.1.
Sources: Koyfin, Tradingview, Reuters
