Australian shares rise after RBA rate hike as oil prices plunge

The S&P/ASX 200 inched up 25.5 points, or 0.3%, to 8,882 just before 3 pm AEDT, with eight of its 11 sectors trading in the green after the Reserve Bank of Australia lifted its cash rate to 4.85%, the highest level in 18 years. The central bank warned that inflation is expected to stay elevated through much of 2027 and may not reach the 2%-3% target until late 2027.

Oil prices fell sharply overnight, with Brent crude dropping 7.6% to below US$105 a barrel, its biggest three-month decline, after the United States and Iran signaled a willingness to pursue peace talks. The slide in energy costs pushed oil-related stocks lower, led by a 3.7% fall in Woodside shares, while Santos, Ampol, Yancoal and Whitehaven also posted declines. By contrast, airline stocks rose on expectations of lower jet-fuel expenses, with Qantas up 5.7% and Virgin Australia up 6.7%.

"They want to make a deal, and that could happen," President Donald Trump told reporters in Washington, adding that the drop in oil prices reflected progress in negotiations.

The mining sector gave back earlier gains, with BHP and Rio Tinto each slipping 0.2%. Gold prices held just below US$4,000 an ounce, after a 1.9% rise the previous session, while higher rates continued to pressure non-yielding metals.

Among the major banks, the Commonwealth Bank of Australia rose 1.3%, National Australia Bank was flat, Westpac fell 0.9%, and ANZ lost 1%. In a client note, the Commonwealth Bank warned that the Australian property market could face its largest downturn on record, with house prices projected to fall about 14% before stabilising late next year.

The technology sector posted modest gains, led by WiseTech Global (+2%) and NextDC (+5.1%). Codan, a supplier of drone components, fell 2.8%.

In the United States, the S&P 500 slipped 0.5% after an early rally, while the Dow Jones Industrial Average rose 0.4% and the Nasdaq fell 1.1%. The moves were influenced by the oil price decline and ongoing uncertainty over the Iran war. Tech and AI stocks remained volatile, with Alphabet, Nvidia and Apple experiencing mixed performance after recent earnings reports.

European markets closed higher, and Asian indexes showed mixed results, with South Korea’s Kospi gaining 2.2% and Chinese markets rising modestly after the People’s Bank of China announced a new liquidity program.