ASX rises as RBA Governor Philip Lowe lauds economy, pushes back on interest rates

An upbeat economic speech from RBA governor Philip Lowe has provided a pleasant surprise for local traders.

The Australian sharemarket recovered from an early tumble on Tuesday after Reserve Bank Governor Philip Lowe delivered an upbeat assessment of the Australian economy, while downplaying the odds of an interest rate hike before 2024.

The benchmark ASX 200 dropped at the open but turned a corner after Dr Lowe’s lunchtime address to register a third straight gain, adding 12.1 points or 0.2 per cent to close at 7437.3.

Trading was nonetheless cloaked in uncertainty as local investors awaited the latest US inflation data, something analysts considered a potential source of volatility should the overnight figures overshoot expectations.

The central bank was the focus of the day for local traders with a dovish appraisal from the RBA Governor clearly surprising the market.

IG Markets analyst Kyle Rodda said Dr Lowe had used his speech to hammer home the need for supportive monetary policy amid the expected delay of Australia’s economic expansion from the Delta outbreak.

“Last week’s RBA meeting certainly stated that as far as policy goes, the gun will be in the holster until at least February as the vaccine drive ramps up and the economy reopens,” Mr Rodda said.

“But today, the Governor quite bluntly expressed his view the cash rate will remain at the effective lower bound for well beyond that, seeing inflation pressures diminishing because of the shock to the economy, and pledging to change policy only when the actual inflation target is sustainably realised.”

The cash rate has been held at a record low 0.1 per cent since November last year, heightening the appeal of equities as an investment option.

Openmarkets Group chief executive Ivan Tchurilov said Dr Lowe had effectively issued a “direct challenge” to those – the Commonwealth Bank especially – touting an interest rate rise as early as November next year.

But the news won’t be welcomed by young people attempting to enter the housing market.

“Governor Lowe made time to confirm his remit does not include affordable housing, which is going to come as a cost to the low interest rate environment, which he needs to maintain to achieve full employment and economic prosperity for all,” Mr Tchourilov said.

An overnight oil price rise lifted the energy sector on Tuesday while the major banks and miners mostly finished ahead as investors continued to claw back the heavy losses suffered last Thursday.

Oanda Asia-Pacific analyst Jeffrey Haley said oil prices moved higher as OPEC raised 2022 consumption forecasts above pre-pandemic levels, assisted by the arrival of Tropical Storm Nicholas in Louisiana and Texas, potentially delaying the return of post-Ida production.

Beach Energy rose 7.2 per cent to $1.115, Woodside Petroleum gained 6.2 per cent to $20.18, and Oil Search lifted 5.4 per cent to $3.94.

There were declines for biotech CSL, Wesfarmers, Fortescue Metals and Woolworths, while Zip Co took a tumble after announcing at an investor day it would expand the services it offers beyond buy now, pay later.

This includes a foray into cryptocurrency, with the company set to offer users a trading functionality and allow its merchants to accept bitcoin as a form of payment.

The firm lost 2.7 per cent to close at $6.84. Rival Afterpay was another loser, dropping 1.4 per cent to $122.20 in another tech sector slide.

Pallet firm Brambles was the worst performer on the market, falling 8.3 per cent to $11.24 as a move to digitise the company gave investors the jitters.

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