Australia 200 Remains Fixated On Key 5500 Level

 | May 19, 2014 12:39AM ET

h2 Australia 200 for Monday, May 19, 2014

Over the last month or so the Australia 200 Index has formed an attraction to the key 5500 level. The index has spent a considerable amount of time trading around 5500, although over the last couple of weeks it has been trading below this level. During this time it has been placing ongoing pressure on the resistance level at 5500 and late last week it was finally able to move through to a three week high before easing back again to this key level. Several weeks ago it slowly but surely eased away from its multi-year high achieved near 5560; however, the following week it fell reasonably sharply and started looking towards the 5400 level. In doing so, it returned back under the key 5500 level which has provided some reasonable resistance over the last few months.

For the bulk of the last few months, the Australia 200 Index has traded roughly between 5300 and 5500, therefore its return to back under 5500 was not surprising.  The index has done well over the last couple of months to move steadily higher from support around 5300 up to beyond 5500, forming higher peaks and higher troughs along the way. The support level at 5300 may also be called upon should the index fall lower and will also likely play a role in providing some buffer from any decline. Since February, most of the trading activity has occured between 5400 and 5500, therefore the former level may also be called upon to prop up prices. The index has done very well over the last couple of years moving from below 4000 to its present trading levels around 5500.

Making it easier for home buyers to borrow more than they can reasonably service does “nobody a favour,” the Reserve Bank of Australia has warned. As interest rates have fallen, demand from housing investors and trade-up buyers has increased. But first-home buyers will feel squeezed out, which is “probably quite disheartening” for them, head of the RBA’s financial stability department Luci Ellis told a Sydney conference. “As such, it would not be a good outcome if they responded by overstretching themselves to try to get into the market during upswings,” Ms Ellis told the CITI Residential Housing Conference. “As well as being against first home buyers’ own long-run interests, that would increase risk in the financial system.” Overseas experience had shown that making excessive borrowing easier was unhelpful, she said.