ASX 200 Index forecast as UBS predicts RBA rate hike after surprise Australia jobs data

The ASX 200 Index wavered after the latest Australian jobs report raised the possibility that the Reserve Bank of Australia (RBA) will hike interest rate in the next meeting. It also rose after the latest Trump TACO moment on the Greenland issue. It was trading at A$8,837, up slightly from this week’s low of $8,738.

UBS predicts RBA rate hike in February

The ASX 200 Index, which tracks the biggest companies in Australia, was in a tight range after the latest Australian jobs numbers.

A report by the Australian Bureau of Statistics (ABS) showed that the country’s labor market boomed in December. 

The economy added over 65k jobs in December after losing 65k jobs in the previous month. This surprise increase was much better than the median estimate of 30k.

Most importantly, the economy created more full-time jobs than part-time. Full-time jobs rose by 54.8k, while part-time jobs rose by 10k during the month.

The report also showed that the unemployment rate improved to 4.1% from the previous 4.3%, while the participation rate rose from 66.6% to 66.8%.

All these numbers were much better than what most analysts were expecting. Therefore, some analysts believe that the RBA will decide to hike interest rates in the upcoming meeting in February. 

In a note, analysts at UBS predicted that the Bank will move the benchmark rate to 3.85% from the current 3.60%. The money market is pricing in a 50% chance of a rate hike during the meeting.

Odds of higher interest rates have been rising after Australia published strong inflation data. The most recent data showed that the headline Consumer Price Index (CPI) remained above 3%, which is much higher than the bank’s target of 2%.

Australian dollar and bond yields jumped 

The rising odds of higher interest explains why the Australian dollar surged, with the AUD/USD exchange rate rising to 0.6800, its highest level since September 2024. It has jumped by 15% from its lowest level in April last year.

Similarly, Australian government bond yields continued rising, with the ten-year hitting 4.80% and is hovering at its highest level since October 2023. Similarly, the five-year yield rose to 4.378%.

The ASX 200 Index also rose because of the ongoing Trump Always Chickens Out (TACO) trade. TACO is a concept where Donald Trump makes an outlandish request and then retreats. 

In this case, he warned that he would impose large tariffs on several NATO members because of the Greenland issue and then changed his mind during his visit to Switzerland. In a statement, he said that he had reached a framework on Greenland, with the media reporting that the US will gain access to mineral rights. 

Australian banks were among the best gainers in the ASX 200 Index as investors anticipated higher rates for longer. Bank of Queensland stock rose by 6%, while NAB rose by 3%. CBA and Westpac banks also rose by over 2%. Other top gainers were companies like Premier Investments, IDP Education, a2 Milk Company, and Beach Energy.

ASX 200 Index technical analysis 

The daily timeframe chart shows that the ASX 200 Index held steady on Thursday after the latest Australian jobs data. It has jumped from a low of $8,376 in November to the current $8,840

The index has formed an ascending channel and is now in its middle. It has remained above the 50-day and 100-day Exponential Moving Averages (EMA).

The most likely scenario is where the index continues rising as bulls target the next key resistance level at $9,000.  A move above that level will point to more gains, potentially to the all-time high of $9,120.

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