S&P ASX 200 pops after the RBA decision: is it a buy?

The S&P ASX 200 index held quite well on Tuesday morning after the latest decision by the Reserve Bank of Australia (RBA). The index, which tracks the biggest Australian firms, rose to $7,375, which was much higher than the year-to-date low of $7,181. 

RBA interest rate decision

The RBA concluded its two-day monetary policy meeting and decided to do what most analysts were expecting. It hiked interest rates by 25 basis points to 3.60% in a bid to fight soaring inflation. It was the tenth straight rate hike.

In a statement, the RBA hinted that it will continue hiking rates considering that inflation remains at an elevated level. Data published in February showed that the headline consumer price index (CPI) remained above 7% in the fourth quarter. Analysts expect that the bank has several more rate hikes to go. Governor Philip Lowe said:

“And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment. The Board is seeking to return inflation to the 2–3 percent target range while keeping the economy on an even keel.”

The ASX 200 index also reacted to ongoing China’s party congress in Beijing. In it, the Xi administration set in place a growth target rate of 5% for the year. Analysts see it as a relatively modest rate considering that China is used to growing at a faster pace than that.

China’s developments are important for Australia because of the volume of goods that the country sells there. Most of the biggest ASX 200 constituents generate a significant portion of their revenue from China. Also, commodity prices are usually affected by developments in the country.

On Tuesday, Australia’s president said that he was ready to visit China if he was invited. That will be a good step as the two sides attempt to mend their relationship.

ASX 200 forecast

ASX 200 chart by TradingView

The ASX 200 index popped to a high of $7,375, the highest level since February 17. It has been in a strong comeback that has seen it move above the 25-day and 50-day moving averages. The index also jumped above the upper side of the bullish flag pattern that was forming recently. Its Relative Strength Index (RSI) has moved close to the overbought level.

Therefore, the index will likely continue soaring as investors target the important resistance point at $7,500. A drop below the support at $7,300 will invalidate the bullish view.

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