SYDNEY: The Australian sharemarket has bounced modestly higher after the US Federal Reserve indicated it could raise rates in December.
At the 10.15am (AEDT) official market open, the benchmark S&P/ASX200 index was up 11.8 points, or 0.22 per cent, at 5,347, while the broader All Ordinaries index gained 12.6 points, or 0.23 per cent, at 5,387.
The US Federal Reserve this morning kept open the prospect for a 2015 rate hike, indicating it could move at its next meeting if there is further progress in the labour market and signs higher-trending inflation.
CMC Markets strategist Michael McCarthy said the US Federal Reserve dealt with one of the most important investment uncertainties at its meeting.
“US interest rates will rise in December, barring a significant change in conditions,” Mr McCarthy said.
Global share markets responded strongly to the news. Although higher rates cost businesses more, and hurt company valuations, the confidence expressed by the central bank in the US economy appeared to outweigh the negatives.
Major indices rose by more than a percent while oil prices rose around 5 per cent, aided by a net draw on weekly stocks but also appearing to confirm improved industrial sentiment.
The Australian dollar tumbled below US71c after the news, while the Reserve Bank of New Zealand’s hold on rate cuts, after three consecutive moves lower, added to the local currency’s decline.
The local dollar has trended lower following yesterday’s softer-than-expected inflation numbers. The data raised the prospect of a rate cut from the Reserve Bank on Tuesday, with the chances of a move now seen at 50 per cent.
Meanwhile, the price of iron ore tumbled below the key psychological threshold of $US50 a tonne as Chinese steel mills warn on slumping demand. The commodity is trading at its lowest mark since mid-July having not enjoyed a positive session for more than two weeks.
