The ASX 200 index rose this week after Australia published encouraging consumer inflation data, pointing to a potential dovish Reserve Bank of Australia (RBA). The index, which tracks the biggest companies in Australia, rose to A$8,488 on Wednesday, its highest level since December 5 and a few points below the all-time high of A$8,530.
Australia inflation data falls
The ASX 200 index rose, while the Australian dollar and bond yields pulled back after the latest Australian inflation data.
According to the Australian Bureau of Statistics (ABS), the headline Consumer Price Index (CPI) rose by 0.2% in the third quarter, missing the average estimate of 0.3%.
This increase translated to an annualized increase of 2.4%, much lower than the 2.5% in the third quarter and the median estimate of 2.5%.
The closely watched trimmed and weight inflation numbers were also lower than analysts estimated. The weighted mean CPI fell from 3.7% in Q3 to 3.4% in Q4, while the trimmed mean fell from 3.7% to 3.4%.
Australian bond yields continued falling, with the ten-year moving from 4.71% to 4.37%, its lowest level since January 1. Similarly, the 30-year and 5-year yields fell to 4.91% and 3.90% this week.
The AUD/USD exchange rate also continued falling, reaching a low of 0.6245, much lower than this month’s high of 0.6330.
Read more: AUD/USD analysis: outlook ahead of US retail sales data
Potential RBA interest rate cuts
This price action happened as investors anticipated that the Reserve Bank of Australia (RBA) will embrace a more dovish tone this year. That’s important since, unlike other global central banks, the RBA has been one of the most hawkish in the last 12 months.
The RBA has avoided cutting interest rates, fearing that doing so will lead to higher inflation in the country. As such, with inflation falling, there are hopes that the bank will start to cut rates this year.
Other global central banks have slashed interest rates in the past few months. The Fed cut rates by 1% last year, while the European Central Bank cut four times. The Bank of England has also slashed rates two times.
The ASX 200 index will likely benefit if the RBA starts cutting interest rates later this year as it will incentivise investors from moving from bonds.
ASX index top movers
Many companies has done well this year. The top gainers in the ASX 200 index were names like Insignia Financial, which soared by 25% this year, Austal, up by 17%, Ingenia Communities (25%), and Sims Metal Management (14%. Other top performers were firms like Perseus Mining, and Remelius Resources.
On the other hand, the worst performers in the index were firms like NRW Holdings, Kogan, Nuix, and Premier Investments.
ASX 200 index analysis
ASX 200 chart by TradingView
The daily chart shows that the ASX 200 index has been in a strong uptrend in the past few months. It has jumped from A$6,735 to a high of $8,500, its highest point since December 9.
The index has jumped above the 50-day and 100-day moving averages. Similarly, the Relative Strength Index (RSI) and the MACD indicators have continued soaring.
The index has formed an ascending channel. Therefore, it will likely continue soaring, with the next point to watch being at $8,600. A drop below the 50-day moving average at A$8,310 will point to more downside.
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