the asx falls nearly 2 per cent on rba and a surge in the australian dollar 1514252015

The Australian stock market fell sharply Tuesday, buffeted by the Reserve Bank of Australia’s decision to keep the benchmark cash rate unchanged, and the absence of any indication in its statement regarding further interest rate cuts. Investors were also unnerved by the strength in the Australian dollar, both due to the RBA, as well as robust export data out yesterday.

Indices and sectors

The benchmark S&P/ASX 200 fell 99.4 points, or 1.8 per cent, and closed at 5,636, while the broader All Ordinaries index was down 94.1 points, or 1.7 per cent, at 5,639.9.

There were no gainers amongst sectors. The biggest losing sectors were materials (-2.22 per cent), real estate investment trusts (-2.01 per cent), industrials (-2.01 per cent), energy (-1.93 per cent) and financials (-1.88 per cent).

Stocks

In the materials sector, mining stocks were heavily sold off. BHP Billiton Limited (ASX:BHP) slumped 2.95 per cent to AU$28.33, Rio Tinto Limited (ASX:RIO) fell 1.62 per cent to AU$56.49 and Fortescue Metals Group Limited (ASX:FMG) remained unchanged at AU$2.38.

Energy stocks, too, felt the brunt of investor selling. Woodside Petroleum Limited (ASX:WPL) was down 1.23 per cent to AU$36.11, Origin Energy Ltd (ASX:ORG) shed 1.27 per cent to AU$13.23, Oil Search Limited (ASX:OSH) fell 3.76 per cent to AU$7.42 and Santos Ltd (ASX:STO) plunged 2.88 per cent to AU$8.08.

The major banks fell hard. Commonwealth Bank of Australia (ASX:CBA) was down 1.75 per cent to AU$83.00, Westpac Banking Corp (ASX:WBC) was down 2.36 per cent to AU$32.34, Australia and New Zealand Banking Group (ASX:ANZ) fell 1.28 per cent to AU$32.30 and National Australia Bank Ltd. (ASX:NAB) fell sharply by 2 per cent to AU$33.35.

Wesfarmers Ltd (ASX:WES), the owner of supermarket chain Coles, was down 1.28 per cent to AU$42.38, Woolworths Limited (ASX:WOW) fell 0.69 per cent to AU$27.51, Caltex Australia Limited (ASX:CTX) dipped 1.34 per cent to AU$33.06 and Myer Holdings Ltd (ASX:MYR) slumped 1.69 per cent to AU$1.46.

In telecommunications, Telstra Corporation Ltd (ASX:TLS) was down 0.97 per cent to AU$6.14, M2 Group Ltd (ASX:MTU) plunged 3.15 per cent to AU$10.76, TPG Telecom Ltd (ASX:TPM) fell 1.44 per cent to AU$8.91 and iiNet Limited (ASX:IIN) closed lower by 0.10 per cent at AU$9.75.

Economic news, currency and market outlook

The Reserve Bank of Australia, at its monetary policy meeting held yesterday, left the benchmark interest rate unchanged at the record low of 2 per cent. In its assessment of the economy, the RBA reiterated its view that “the economy is likely to be operating with a degree of spare capacity for some time yet,” and that “inflation is forecast to remain consistent with the target over the next one to two years, even with a lower exchange rate.” The central bank again drew attention to Australia’s falling terms of trade, and stressed its familiar viewpoint that “further depreciation seems both likely and necessary.” The bank said it would monitor economic and financial conditions and decide its monetary policy stance accordingly.

The bank’s decision to hold interest rates steady had already been well anticipated by analysts, though the market was disappointed that the RBA refrained from hinting at further easing in the future, keeping a neutral, “wait-and-see” tone in its statement.

Data from the Bureau of Statistics showed that Australia’s net exports rose 24 per cent during the March quarter and its current account deficit surged 5 per cent to AU$10.7 billion, reported the ABC. According to the Bureau, the data makes the case for an additional 0.5 per cent rate of GDP growth for the March quarter.

On Wall Street overnight, the Dow Jones Industrial Average fell 28.43 points, or 0.16 percent, to 18,011.94, the S&P 500 lost 2.13 points, or 0.1 percent, to 2,109.6 and the Nasdaq Composite dropped 6.40 points, or 0.13 percent, to 5,076.52.

The Australian dollar surged higher following the RBA’s decision to keep interest rates on hold, as well as the glimmer of hope that Greece might yet workout the bailout funding problems with its creditors, according to the Business Spectator. At 07:20 this morning (AEST), the Aussie was trading at 77.77 US cents, up from 77.00 US cents on Tuesday.

The Australian stock market is likely to open higher today given that at 07:00 this morning (AEST) the June ASX SPI200 Index (AP) Futures was up 18 points at 5,641.