The ASX 200 index retreated on Tuesday as the market reacted to the latest Reserve Bank of Australia (RBA) interest rates. The index, which tracks the biggest companies in Australia, retreated to $8,375, down by 1.83% from its highest level this year.
RBA leaves interest rates unchanged
The ASX 200 index retreated after the RBA decided to leave rates unchanged at 4.35%, where they have been in the last 12 months.
Unlike other global central banks, the RBA has maintained a fairly hawkish tone, citing the stubbornly high inflation rate in the country.
Recent data showed that the headline Consumer Price Index (CPI) dropped from 3.8% in Q2 to 2.8% in Q3. This decline was higher than the median estimate of 2.3%.
The trimmed mean inflation, which excludes the most volatile food and energy prices, retreated to 3.5% from the previous 3.9%. These numbers meant that inflation was much higher than the RBA’s target of 2.0%. The statement said:
“While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high. Recent data on inflation and economic conditions are still consistent with these forecasts, and the Board is gaining some confidence that inflation is moving sustainably towards target.”
In its last decision of the year, the bank hinted that the first rate cut will likely come in the first or second quarter of the year. Historically, financial assets like stock indices do well when central banks are cutting interest rates.
The rate decision came at a time when the Australian dollar has slumped, with the AUD/USD pair falling from the year-to-date high of 0.6942 to a low of 0.6375, a 8.2% drop.
Read more: ASX 200 outlook after RBA decision; ANZ, NAB, REA earnings ahead
Top ASX 200 index movers
The RBA decision also happened as Australian stocks have done well this year, with the ASX 200 rising by almost 10% this year. It has underperformed other major global indices like the S&P 500 and Nasdaq 1o0 indices, which have soared by double digits.
Most ASX 200 constituents have done well this year. Mesoblast, a company that makes cellular medicines, has been the best performer as its stock jumped by over 400% this year.
Technology companies have also helped the index. Zip, a leading player in the buy now, pay later (BNPL) industry, has risen by 366% this year. This growth is in line with that of other BNPL companies like Affirm and Klarna.
Appen, a tech company in the AU and data industry, has jumped by 240% this year, as demand for AI solutions jumped. The other top companies in the index are Nuix, Pointsbet Holdings, and Netwealth Group.
Australian banks have done well this year, which has led to concerns about their valuations.
Westpac Banking stock price has jumped by 47% this year. Similarly, Commonwealth Bank of Australia (CBA) shares have jumped by 40%. The National Bank of Australia (NAB) stock has jumped by 23% this year, while ANZ has been the main laggard as it jumped by 13%.
Australian mining companies have largely underperformed the market this year as commodity prices fell. BHP Group’s stock retreated by 17%, while Fortescue Metals fell by almost 30%. Rio Tinto shares have fallen by 8.10%.
ASX 200 index analysis
ASX 200 index chart | Source: TradingView
The daily chart shows that the ASX 200 index has been in an uptrend in the past few months. It has formed an ascending channel shown in black, and is now a few points below the its upper side. This channel formed as the index formed a series of higher highs and higher lows.
The ASX 200 index has remained above the 50-day and 200-day Exponential Moving Averages (EMA). Also, the two lines of the MACD have made a bearish crossover pattern, while the Relative Strength Index (RSI) has pointed downwards.
Therefore, the index will likely waver, and then resume the uptrend. More gains will be confirmed if the index rises above the year-to-date high of $8,532. A drop below the 50-day moving average will invalidate the bullish view.
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