Australian rate cut fuels NZ shares

The New Zealand share market rallied with its Australian counterpart as the Reserve Bank of Australia cut interest rates and expanded its quantitative easing program.

Tuesday, November 3rd 2020, 6:16PM

by BusinessDesk

The S&P/NZX 50 Index rose 59.48 points, or 0.5 percent, to 12,130.31. Within the index, 29 stocks rose, 16 fell and five were unchanged. Turnover was $133 million.

The Reserve Bank of Australia cut the cash rate to a record low 0.1 percent and committed to a A$100 billion bond buying programme to keep interest rates low and assist the recovery of the Australian economy.

The S&P/ASX 200 was up more than 2 percent - its biggest climb in almost a month - while the currency barely reacted to the decision.

The kiwi dollar climbed from 94.04 Australian cents to peak at 94.27 cents and was trading at 94.14 by 5pm in Wellington.

Mike Shirley, a senior trader at Kiwibank, said the rate cut had already been priced into the currency, but equity markets may be experiencing a “confirmation rally.”

“Markets are not completely efficient; retail investors are not as quick to respond as institutional investors so you can see a lag effect there,” he said.

“And of course, the whole point of lower interest rates is that it encourages investments in productive assets like equities.”

Investors took the central bank’s hint and bought up large on the Australian equity markets with sentiment spilling over into the NZX 50.

Stocks exposed to the Australian market performed well. Fletcher Building gained 3.3 percent at $4.35, second-tier bank Heartland Group Holdings rose 3.2 percent to $1.31 and retailer Kathmandu Holdings was up 1.7 percent at $1.17.

US-based donation software company Pushpay led the market higher, rising 4.6 percent to $9.20 ahead of its first-half result tomorrow. Fuel retailer Z Energy, which is also reporting earnings tomorrow, was up 0.4 percent to $2.90.

Australia & New Zealand Banking Group rose 2.2 percent to $20.84, while Westpac Banking Corp slipped 0.1 percent to $18.94. Lower rates are a mixed blessing for banks with increasing demand for loans but squeezing margins.

Precinct Properties posted the day’s biggest decline, dropping 2.3 percent to $1.70, and the NZX’s biggest company, Fisher & Paykel Healthcare, weighed down the rally as it fell 1.3 percent to $35.53.

Tomorrow, voters in the United States head to the polls in a highly contentious election that has been a drag on investor sentiment.

The kiwi dollar fell below 66 US cents yesterday, but recovered overnight and was trading at 66.32 cents at 5pm in Wellington, up from 66.02 cents yesterday.

Joe Biden has a comfortable lead in national polls, but the race to win the decisive electoral college is much closer. With President Trump refusing to commit to a peaceful transfer of power, investors are hoping for a definitive outcome to avoid uncertainty and civil unrest.

The trade-weighted index was at 71.42 at 5pm, from 71.17 yesterday. The kiwi traded at 94.14 Australian cents unchanged from yesterday, 69.44 yen from 69.11 yen, 56.91 euro cents from 56.72 cents, 51.31 British pence from 51.07 pence, and 4.4383 Chinese yuan from 4.4147 yuan.

Tags: Market Close