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  • Bulls are taking the baton in the build-up to the RBA.
  • In the background, geopolitics is heating up as a key risk. 

Australian shares in the ASX 200 index are higher on Tuesday, rising by 1.4% between a low of 5,319.8 and 5,403.5, currently trading at 5,393. The risk sentiment has improved following a positive close on Wall Street: Wall Street Close: US benchmarks rally into session end for a positive close

It was a day of mixed sentiment in the US session, although an underbelly of uncertainty pertaining to the origins of COVID-19 has been surfacing of late following the US administrations accusations. 

Mike Pompeo, Secretary of State, and his interview on ABC News reported on here: What you need to know as markets open: Pompeo and Trump ratcheted up US and China tensions has kicked up a storm this week, leading to a risk-off start in Asia yesterday. The Global Times (GT) wrote an editorial here: Pompeo’s anti-China bluff strategy reveals all-or-nothing mentality to fool US voters – GT in retaliation and the markets seem to be siding with such notions.

The WHO has confirmed it has not received evidence from Washington about its speculation about Wuhan laboratory. However, Trump’s administration has been suggesting it could impose additional tariffs on Chinese goods in retaliation. 

Looking ahead

Meanwhile, Treasurer Josh Frydenberg is scheduled at 1230 AEST to speak to the National Press Club about economic reform and recovery from the coronavirus. Then later in the afternoon, the Reserve Bank board will meet, however, markets are expecting little action and for the bank to hold rates at a record low 0.25 per cent.

  •  RBA Preview: Markets looking for forecasts, not action

The policy rate announcement is at 2:30pm Syd/12:30pm Sing/HK. “While the cash rate is expected to remain at the effective lower bound of 0.25%, the Board’s assessment of its yield curve control will be of interest to the market,” analysts at Westpac explained, adding:

 Governor Lowe should also provide an indication of the forecasts the RBA will publish in Friday’s quarterly Statement on Monetary Policy. Massive changes will be needed as the February forecasts were for a year of solid economic growth. Any concern over the rebound in $A since March would be notable.

ASX 200 Index 38.2% to hold for a third time? 

The ASX 200 Index has a strong level of resistance around the 38.2% Fibonacci level (5470). The index has been trading between there and the  23.6% Fibo since the end of March. The bears will be looking for an extension below the COVID-19 lows of 4402. However, on a break higher will extend towards a 50% mean reversion at 5794 ahead of a 61.8% golden ration at 6127.