ASX200 breaks out on the back of softer RBA interest rate hike

The ASX200 has seen some positive price action in recent weeks as the Australian equities market has benefited from relatively weaker inflation then much of the rest of the world. With the Reserve Bank of Australia, (RBA) only increasing interest rates by 25 bps at each of its last two meeting, the country’s central bank has seemingly chosen that inflation is perhaps the lessor of two evils against the potential of a recession. On the other hand, with expected inflation to increase to 8%, the RBA may be hoping for a softer landing and slower move to control inflation.

In response to the two most recent cash rate changes, the ASX200 has been the beneficiary with the index testing its two-month high. On the weekly chart, the index has so far bounced off its long-term support zone and its 200-week moving average. This may indicate that the index has ‘bottomed’ at least in the short term. The price is also showing signs of a potential double bottom reversal pattern, with the two bottoms being at approximately 6500 points. If the price can break through the neckline and confirm itself as a double bottom it may accelerate through and test the all-time high resistance at 7617.

On the daily chart the index shows some further encouraging signs of a reversal or breakout. The index has broken out of the down channel in the last two days and has reclaimed both the 50 day and 200 day moving averages. In addition, the 50-day moving average is beginning to kick up, which indicates some short-term bullish sentiment.

It is important to remember that there may still be some headwinds with inflation and recessionary pressures still dictating much of the short-term price action, pushing higher may not be an easy feat.