RBA preview and what comes next for the ASX200

The highlight of this week's local data calendar is tomorrow's RBA Board meeting and whether the RBA proceeds to taper its QE program in September. Or whether the impact of the fast-spreading delta variant has been enough to see tapering delayed or even increased. 

At its August Board meeting, the RBA left the cash rate at 0.1% and maintained July's guidance for a taper to its QE program in September to a rate of $4bn/week (from $5bn/week currently). The RBA's decision to maintain course was a hawkish surprise relative to the consensus expectations, many of whom expected the RBA to delay its scheduled taper. 

Since then, near-term conditions have deteriorated rapidly relative to the RBA's August forecast, which assumed Sydney's lockdown would end in September. Melbourne has since joined Sydney in abandoning its zero case objective to a strategy of extending lockdowns until vaccination rates have reached higher levels. 

Together Sydney and Melbourne account for 55% of Australian GDP. The impact of extended lockdowns in Sydney and Victoria is likely to result in Q3 GDP falling by -4.0% and see a more subdued recovery in Q4, unlike the v-shaped recovery seen at the beginning of 2021. 

In this context, the RBA's definition of a "substantial setback" to the economic recovery appears satisfied. There is a strong case for the RBA to delay its QE tapering from September until November. 

Turning now to the ASX200 that finished last week 0.5% higher, as stocks going ex-dividend impacting proceedings and made for choppy trading conditions. 

The ASX200 has started this week on a softer tone, currently trading at 7473 (-0.66%), although above its intraday low as buyers again support the 7440/30 area. Nonetheless, the preferred strategy remains one of buying weakness in the ASX200 towards 7340/20, looking for a rally towards 7700 into year-end. 

ASX200 Daily Chart

Source Tradingview. The figures stated areas of September 6th of September, 2021. 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

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