GDP growth estimates for year-end 2016 were lowered by 25 basis points to 2.5-3.5%. Underlying inflation forecasts were also raised 25 basis points to 2-3% for June 2016. The RBA was surprisingly upbeat about employment, expecting little change in the unemployment rate over the next 18 months before declining in 2017. Housing loan growth was also mentioned with investor loans declining, while owner occupier loans increased, clearly showing APRA’s new requirements are working. This helps reduce the probability of any housing market induced financial instability.
Taken in view of the RBA policy decision on Tuesday, it seems rate cuts have been taken off the board and expectations are now for a prolonged hold with rates at 2%. The AUD rallied 24 pips on the release up to 0.7374 and we look so be seeing some stability at this level with any future moves downwards likely to be driven by developments in the US, as the Fed approaches a potential September rate hike.
Further ASX declines
Headwinds overnight (with falls in European and US markets) were already pointing to further declines in the ASX 200 today and they have conspired with a range of domestic factors to pull the market down 1.6%.
As you can see in the chart, the ASX has formed a perfect double top pattern in recent weeks after its failure to break through the 5700 level and hold it. If the ASX closes below the 5520 neckline of the double top, the technical target for the index would be a decline to the 5335 level – a 6.4% decline from its recent high on 5 August.