Australian shares took a hit as interest rates rose to 4.1% yesterday, the highest cash rate since April 2012.

The ASX 200 ended the day down 1.2% on the back of the Reserve Bank of Australia’s (RBA) announcement. The Consumer Discretionary sector took the biggest hit, losing more than 2% for the day, with mortgage induced cost of living pressures now set to further intensify.

Despite the RBA’s sustained and aggressive monetary policy, the increase was by no means a foregone conclusion. Just four of the 25 economists surveyed by Bloomberg expected the RBA to raise rates by 0.25% to 4.1%, and money markets saw only a 35% chance of a hike.

RBA Governor, Philip Lowe quickly put paid to those odds, stating while “inflation has passed its peak” it is “still too high.”

And markets can brace for further rate hikes, with Lowe pointing to increased “upside risks to the inflation outlook,” as the RBA’s war to wrestle down the current figure of 7% continues.

Back on the local market, eight of 11 sectors finished yesterday’s session lower for the week, along with the ASX 200 Index, which was down 1.1% for the week.

While the share market dropped, the Aussie dollar and bonds benefited from the volatility.

The Australian dollar leapt 0.8% to $0.6667 following yesterday’s RBA announcement, while three-year government bond yields rose 12 basis points to 3.6%, the highest since February.

Looking ahead, local investors will be intently studying developments in the global economy, trends in household spending, the outlook for inflation, and the labour market. 

The RBA has stated these will be key determiners in its upcoming monetary policy decisions ahead of next month’s meeting.

The ASX 200 (XJO) recently experienced a break above its 50-day moving average, signaling a bullish trend. However, the market subsequently reversed and started to decline, leading to a consolidation phase where it has been fluctuating between the 50-day and 200-day moving averages. The market’s performance has been heavily influenced by external factors such as overseas markets, the US debt deal, and local RBA interest rate decisions throughout the week.

Currently, the implied volatility on a 52-week basis remains relatively low, indicated by a rank of 8. This suggests that price fluctuations have been relatively stable compared to historical levels. Traders and investors should closely monitor key support and resistance levels to identify potential trading opportunities. It is worth noting that if the market breaks below the support level at 6,946, an increase in volatility would be expected.

As the market remains range-bound and lacks a clear directional bias, it is important to approach trading with caution. It is advisable for traders and investors to refrain from taking large, unadjusted risky positions in either direction. Instead, it is recommended to closely observe market conditions and exercise prudence when making investment decisions.

Amid ongoing global inflation pressures, commodity investors will be seeking to navigate market volatility.

One fund manager who is looking past recession fears and is constantly digging up buying opportunities in the resources sector, is Jeremy Bond, Chief Investment Officer at resources specialist investment company Terra Capital.

Jeremy will be joining us this Friday, 9th June at 12pm (AEST) for The Insider: Meet the Fund Manager webcast, where he’ll provide insights into how he identifies buying opportunities. He’ll also discuss his three favourite stocks, why he is currently bullish on copper and Terra Capital’s strategy to navigate the volatility of commodity markets To join us for this session, click here.

Past performance is not a reliable indicator of future performance.