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Shares lower as RBA shifts rates forecast

·4-min read

A Reserve Bank meeting on Melbourne Cup day has left few winners on the share market as an interest rate hike moved closer.

Heavyweight financial and materials shares dived on Tuesday and the Reserve Bank signalled the possibility of a rate rise earlier than its previous forecast of 2024.

While the cash rate remains a record low 0.1 per cent, the central bank scrapped its three-year bond yield target as investors bet inflation will lead to higher rates.

BIS Oxford Economics economist Sarah Hunter noted the RBA had shifted on the timing of the next rate hike.

However, she said prior to the RBA commentary some people had priced in rate hikes next year.

The RBA remained dovish, she said, and was continuing to buy $4 billion in bonds per week until mid-February.

ASX investors lifted the indices after the RBA news. The rally was short-lived.

The Aussie dollar dipped from buying 75 US cents to 74 US cents.

Westpac head of financial market strategy Robert Rennie said foreign exchange investors sold the Aussie dollar due to the RBA continuing its bond buying and its limited changes to forecasts.

US monetary policy will come into focus in the next couple of days as the Federal Reserve board meets.

Analysts have tipped the central bank to scale back its $US120 billion monthly bond-buying program put in place to help the economy during the coronavirus pandemic.

Investors will also be focused on commentary about interest rates and how sustained the recent surge in inflation is.

A modest lead from US markets did not stop the benchmark S&P/ASX200 index closing lower by 46.5 points, or 0.63 per cent, to 7324.3.

The All Ordinaries closed down 45.6 points, or 0.59 per cent, to 7646.6.

Annual general meeting season continues in Australia. On Wednesday, companies discussing earnings include Domino's and Worley.

Westpac shares were down 2.73 per cent a day after its improved full-year profit and share buyback news.

The other banks in the big four were all lower. ANZ was next worst and shed 1.1 per cent.

In mining, BHP, Fortescue, Rio Tinto and South32 all shed more than two per cent.

Financial services provider Netwealth has unsuccessfully proposed buying Praemium for $785 million.

The Praemium board said the bid did not properly value the company and was not in investors' best interests.

Praemium shares closed higher by more than 14 per cent to $1.42.

Netwealth shares were down about two per cent to $17.15.

Insurance Australia Group raised its cost estimate for severe weather this financial year after storms and hail damaged several states last month.

IAG increased its claim cost forecast for what it calls "natural perils" from $765 million to $1.04 billion, having already increased the allowance significantly on the prior year.

Shares dropped about seven per cent to $4.50.

Property giant Goodman raised its full-year earnings forecast and said it was benefiting from a shortage of supply of industrial property.

Earnings per share growth is expected to be more than 15 per cent.

Shares were up five-and-a-half per cent to $23.49.

The boss of energy provider Beach has resigned to work elsewhere.

Matt Kay has led the company for six years and will be temporarily replaced by chief financial officer Morne Engelbrecht.

A search for a permanent replacement is under way.

Shares were down almost four per cent to $1.34.

The Australian dollar was buying 74.74 US cents at 1721 AEDT, lower from 75.06 cents at Monday's close.

ON THE ASX

* The benchmark S&P/ASX200 index closed lower by 46.5 points, or 0.63 per cent, to 7324.3 on Tuesday.

* The All Ordinaries closed down 45.6 points, or 0.59 per cent, to 7646.6.

* At 1721 AEDT, the SPI200 futures index was up 17 points, or 0.23 per cent, at 7306 points.

CURRENCY SNAPSHOT

One Australian dollar buys:

* 74.74 US cents, from 75.06 cents on Monday

* 85.95 Japanese yen, from 85.79 yen

* 64.41 Euro cents, from 64.95 cents

* 54.76 British pence, from 54.89 pence

* 104.34 NZ cents, from 104.59 cents.

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