Australian shares flat as inflation data fuels rate-rise expectations

The S&P/ASX 200 closed almost unchanged on Friday, slipping 2.8 points to 8,847.30, as September inflation data heightened expectations of a Reserve Bank of Australia (RBA) rate increase at its November 2-3 meeting. The Australian Bureau of Statistics reported headline inflation of 4.3% in September, up from 4.0% in August, driven by a 9.4% jump in petrol prices and higher building-costs. The underlying CPI measure rose to 3.6%, a slight increase from the revised August figure of 3.5%.

RBA Governor Michele Bullock told a Senate estimates hearing that the economy’s challenge is to grow without adding further inflationary pressure, noting that the labour market remains tighter than previously judged despite a modest rise in unemployment. Bullock’s comments, together with the data, pushed market expectations for a rate hike to around 90% and lifted three-year bond yields by up to eight basis points.

“I think we can safely lock in a hike here,” said Robert Thompson, head of economics and rates strategy at Royal Bank of Canada in Sydney.

In the currency market, the Australian dollar rose to US$0.7031, while the New Zealand dollar fell, marking its biggest intraday gain against the kiwi in nine years after the Reserve Bank of New Zealand left rates unchanged.

Sector performance was mixed. Miners, banks and technology stocks posted gains, with tech firms such as WiseTech, Technology One, Codan and Megaport rising between 0.9% and 5.1%. Gold-related miners also advanced, while energy and consumer-spending-linked stocks led losses. Star Entertainment shares were halted pending a Federal Court judgment that imposed a A$260 million fine for breaches of anti-money-laundering and counter-terrorism financing laws.

Australian banks – Commonwealth Bank, Westpac, National Australia Bank and ANZ – all traded higher, offsetting declines in retailers like Wesfarmers, JB Hi-Fi, Harvey Norman and Super Retail Group. Energy companies Woodside, Santos, Ampol and Viva Energy fell as oil prices slipped amid reports of possible U.S. military action in the Middle East.

Overseas, U.S. markets rose on AI-related optimism ahead of the Federal Reserve’s decision, with the S&P 500 gaining 0.6% and the Nasdaq up 1.2%. Broadcom announced a US$63 billion financing deal to support AI accelerator Anthropic, while Nvidia added 0.9%.

In bond markets, the U.S. 10-year Treasury yield edged down to 4.99% ahead of the Fed’s upcoming rate announcement.