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RBA confirms rate hike on the cards, ASX falls back


MongiIG

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RBA governor, Phil Lowe, says it's “plausible” that interest rates will rise this year, with the primary uncertainties sitting on the supply side and the labour market.

BG_ASX_australia_index_0809.jpgSource: Bloomberg
Hebe Chen | Market Analyst, Australia | Publication date: Thursday 03 February 2022

Reserve Bank of Australia (RBA) governor, Phil Lowe, on Wednesday indicated that it was “plausible” that interest rates would rise this year, with the primary uncertainties sitting on the supply side and the labour market.

The address came as a surprise to the market as just one day earlier, the RBA said it would maintain its all-time low interest rate and insisted this “does not imply a near-term increase in interest rates.”

While Australia’s underlying inflation is now firmly in the mid-range of the RBA’s two- to three per cent target band, it is set to move higher, as Lowe has forecast wage growth will hit three per cent in 2023, signalling that the conditions for an interest rate rise could be in place much sooner.

This prediction was years ahead of what the RBA estimated in December, when the bank was firm about the first rate hike only coming in 2024.

ABS%20RBA.jpgSource: RBA, ABS

ASX

This week, Australian shares kicked off a rocky reporting season amid concerns over corporate profits piling up at home and overseas.

The S&P/ASX 200 Index is down almost 5% this year, which has been attributed to rapidly growing concern about the impact of tighter monetary policy, the spread of Omicron, and the drag from overseas markets.

Despite some gains early this week, Australian stocks continue to underperform Asia’s regional benchmark, i.e., Hang Seng has grown by 3%, and Japan dropped by 4%.

From the daily chart, the index is clearly under pressure by the level of 7090 at the moment. Current support can be found at the 7000 benchmark, which, if broken, could see the index make a u-turn towards last week’s lowest price, which is also the floor level for 2021, ranging between 6684 and 6824.

A closer look at the hourly chart shows that the price is pushing towards the trendline, together with a descending RSI trendline and the shrinking trading volumes, suggesting the bearish sentiment may remain for some time.

AU%20200%20cash%200302.pngSource: ProRealTime

Hourly Chart

AU%20200%20hourly%200302.pngSource: ProRealTime

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