ASX 200 Bounce Brewing, Inflation and Jobs Data Loom

The ASX 200 is set for a bounce after a pullback from its April high. The durability of any rally depends on domestic data this week. Wednesday's inflation print and Thursday's household spending and employment reports will influence the RBA's policy path.

The index became oversold during the selloff that accelerated after US CPI data last week. Relative strength indicators dipped below 30, a level that often precedes a bounce. Short-covering could amplify any initial move, traders said. The 7800 area offered technical support.

The RBA has held rates at 4.35% since November. Governor Bullock has said rates may need to remain elevated if inflation proves sticky. A hot CPI print would validate that view and push back expectations for the first rate cut, which markets currently see as most likely in November, traders said.

A soft CPI print would revive hopes for a November cut and support the case for an earlier move, possibly as soon as October, traders said.

Weak spending and employment data would support that view and give the RBA more room to ease, traders said.

Global sentiment adds another layer. US CPI data last week came in above expectations. Fed rate cut expectations pushed back. The US dollar strengthened. US yields rose. Commodity prices fell. ASX miners sold off. A weaker dollar would support miners, traders said. The Australian dollar weakened against the US dollar. A weaker AUD supports the export sector but adds to inflation pressure through higher import costs. The RBA has noted that a weaker currency could complicate its inflation fight.

The ASX 200 is heavily weighted towards banks and miners. The two sectors account for roughly 40% of the index. Banks are sensitive to rate expectations. A delay in cuts would compress net interest margins, traders said. Miners are sensitive to commodity prices and the dollar. A stronger dollar pressures commodity prices. Their performance this week will determine whether the bounce holds, traders said.

The ASX 200 has underperformed the S&P 500 this year. The divergence reflects Australia's exposure to China and commodity prices, analysts said. China's economic recovery has been uneven, weighing on demand for Australian exports.

Technicians said a break below 7800 would lead to 7600. The 7800 level has held as support in recent sessions. The level has been tested multiple times in recent weeks. Each test has held, suggesting strong buying interest at that level, technicians said.

A bounce above 8000 would signal a return to the uptrend, they said. The index formed a bullish engulfing pattern on Monday, some technicians noted. Volume was above average, confirming the pattern, they said.

Interest rate futures show a 50% chance of a cut by October. A soft CPI print would increase that probability, traders said. A hot print reduces it.

The RBA's May meeting minutes showed the board discussed a rate hike. They decided to wait for more data. The data this week will inform the next decision, traders said.

The RBA next meets on June 17. The data this week feeds into that decision. Traders are watching Wednesday's inflation print and Thursday's household spending and employment reports.