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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

RBA ends (for now) its rate hiking cycle

At its Board Meeting today, the Reserve Bank of Australia kept its official cash rate on hold at 3.60%, ending a run of ten consecutive rate rises.

Source: Bloomberg

At its board meeting in March, the RBA softened its hawkish tone and opened the door to a pause. The Minutes from the March Board meeting noted that it would be appropriate for the RBA to pause its rate hiking cycle "at some point" to assess the effects of prior rate hikes.

As part of its considerations, it said it would closely watch incoming employment, inflation, business surveys and retail sales data.

Apart from the release of employment data for February, the remainder of the data has been softer than the consensus.

Last week’s release of softer-than-expected retail sales and a lower-than-expected rise in the monthly CPI indicator on top of recent banking stress, combined to see the RBA pause its rate hiking cycle to assess the impact of a total of 350bp of rate hikes since last May.

“The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty.”

While a pause will no doubt see mortgage holders breathe a sigh of relief, the RBA reiterated that its main priority is to return inflation to target and left the door open to future rate hikes.

The RBA noted that the most critical factors behind the next move in rates would be “developments in the global economy, trends in household spending and the outlook for inflation and the labour market”.

As such, the March Labour Force report to be released on April 13th and the March quarter inflation data scheduled for release on April 26th will be closely scrutinised before the RBA’s Board Meeting in May. The market will also be alert to any evidence that bank lending is tightening further.

Today’s decision was in line with our view for the RBA to keep rates on hold at 3.60% and further evidence of the rates market predictive accuracy being fully priced for the RBA to keep rates on hold today. The rates market continues to call for a full RBA rate cut by December of this year.

How did the ASX 200 react?

Heading into the announcement, the ASX 200 traded slightly lower on the day at 7217. Post the “pause” announcement it rallied 20 points before settling up around 10 points at 7232,

Providing the ASX 200 continues to hold above support at 6900, the pullback from the February 7567 high is viewed as a countertrend (an "ABC" Elliott Wave correction), and we expect the ASX 200 to extend its recent rally towards the resistance 7350/70 area (March highs).

ASX 200 daily chart

Source: TradingView
  1. TradingView: the figures stated are as of April 4th, 2023. 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.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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