MARKETS SPECTATOR: Breaking the ceiling

For the past year, the ASX has been hitting resistance at a little above 4400. Will the rate cut finally push it through this psychological barrier?

Locally, the benchmark S&P/ASX 200 is called to open around 0.3 per cent firmer at 4449, which if true would mark a new high for the year, just above 4448 in May. From here, there are two possible situations that may play out. The more likely situation is that we see a continuation of yesterday’s reallocation of capital following the surprise rate cute from the RBA. A lot of market participants would have been blind sided by this cut, hence there may still be more capital to flow into the interest rate sensitive stocks like the financials and consumer discretionary names. There’s probably more demand for the high yielding names too as money flows from bank deposits, which are now paying a lower return to Australia’s top dividend names.


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On the other hand, given the strong rally yesterday and the ‘selling off from highs’ pattern we’ve witnessed in the US during the last two sessions, traders may look to sell at resistance (above chart) and re-enter the market on a pullback.

Traders will also be watching the Australian dollar during the Asian session today after it was re-rated lower in overnight trade. It’s trading around the 1.0260 level, approximately 1 cent lower than just before yesterday’s rate decision. Following big moves like this, it’s quite common to see a bit of a short covering rally during Asian trade as those short look to book some quick profits and Australian traders buy the weakness, hoping for it to bounce further.