Here’s why Australia’s ASX 200 index surged to a record high

Australia stocks are on fire after the encouraging inflation report. The ASX 200 index, which tracks the biggest companies in the country, surged to a high of A$7,695. It has risen in the past three straight months, its longest streak since 2021.

Australia inflation data

The main catalyst for the ASX 200 index surge is the latest Australia inflation report. According to the statistics agency, the headline Consumer Price Index (CPI) rose by 4.1% in the fourth quarter, a strong improvement from Q3’s 5.4%. This inflation figure was smaller than the median estimate of 4.3%.

Australia’s inflation rose by 0.3% on a MoM basis, better than the expected 0.8%. These numbers mean that the Reserve Bank of Australia (RBA) will likely opt to keep rates unchanged for longer instead of hiking them as some analysts were expecting. 

The RBA has been more hawkish than the Federal Reserve and other central banks in the past few months. In most cases, stocks tend to do well when there are signs that the central bank will not hike interest rates.

The ASX 200 index also jumped after the latest China PMI numbers. The manufacturing PMI rose slightly from 49 to 49.2, signaling that the sector is still in a contraction mode. A PMI reading of 50 and above is usually a positive sign.

The non-manufacturing PMI, on the other hand, continued rising in January. It rose from 50.4 in December to 50.7 in January, higher than the expected 50.6. Chinese economic numbers are vital for Australia because it is the biggest customer of goods and services. 

Finally, the ASX 200 index surged because of the ongoing global stocks rally. In Japan, the Nikkei 225 and Topix have surged to their highest points in over 34 years. Similarly, in the United States, the S&P 500 and Nasdaq 100 indices have all surged to record highs. Historically, global stocks - ex China - tend to have a close correlation.

ASX 200 index forecast

ASX 200 chart by TradingView

The weekly chart shows that the ASX 200 index has been in a strong bullish trend in the past few months. It recently moved above the key resistance point at $7,652, where it struggled to move above since August 2021. This price was on the upper side of the ascending triangle pattern, which is a positive sign.

The index has jumped above the 50-week and 100-week Exponential Moving Averages (EMA). Further, the Relative Strength Index (RSI) and the Stochastic Oscillator have all pointed upwards. Therefore, there is a likelihood that the index will continue rising as buyers target the key resistance point at $8,000.