RBA all set for another Cup Day outing - ASX200

This time last year, ahead of the 2020 Melbourne Cup, speculation centered on what measures the RBA would take to bolster the economic recovery.

The RBA presented households and the economy with a Cup Day win as it implemented a package of five easing measures, including two still in place a year later - a reduction in the cash rate target to 0.1% and a 0.1% target yield (YCC) on the 3yr Australian Government bond until 2024.

Last week's higher than expected inflation print in Australia following a similar high reading in New Zealand spooked the Australian bond market, questioning the longevity of those two easing measures.

Currently, there are 100bp of interest rate hikes priced into the Australian rates market until the end of 2022 and another 60 basis points of tightening priced in 2023. In response, the RBA tomorrow will put an official end to its ‘yield curve control’ (YCC) policy that aims to keep the April 2024 government bond yield at 0.1% (now trading at 0.78%).

While the RBA is expected to keep the cash rate on hold at 0.1% it will remain upbeat on growth prospects, revise up inflation forecasts and shift its forward guidance to reflect upside risks and a rate rise in the second half of 2023.

On Friday, the ASX200 fell 107 pts on what appeared to be end-of-month rebalancing flows and a reaction to the sharp repricing higher in Australian bond yields.

Encouragingly for the ASX200’s upside prospects, the index held support at 7340/20 noted in last week's article titled “ASX200 grinds higher ahead of AU Q3 CPI.”

“Providing the ASX200 does not retrace back below short-term support at 7340/20, a bullish bias is in place”

The view remains that providing the ASX200 does not fall back below support at 7340/20 coming from the top of the trend channel, a bullish bias remains in place, looking for a retest and break of the August 7632 high, with scope towards 7750 into year-end.

Source Tradingview. The figures stated areas of November 1st, 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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