The Australian dollar spiked higher and the sharemarket pared tentative gains after the Reserve Bank left rates on hold and backed away from its “easing bias”.
The S&P/ASX 200 index was up 0.3 per cent before the rates decision but dropped back to close 8.3 points, or 0.16 per cent, up at 5196.6 points as the Reserve there were “prospects of a pick-up next year”, indicating a marked deterioration would be required to prompt further monetary relief.
However, shortly before the rates decision it was reported that August retail sales increased just 0.1 per cent, leaving sales “flat-lining” for the past five months, while the current account deficit widened as net exports contracted 0.4 per cent, raising the possibility of a negative GDP print for the June-quarter tomorrow.
The current account deficit was $9.4bn in the June quarter, a $0.6bn increase on a $8.7bn deficit in the March quarter.
Westpac economists said net exports were neutral for GDP growth in the June-quarter, following a 0.9 percentage point contribution in the March-quarter. Net exports added 1.8 percentage points to growth over the past year.
The dollar jumped 0.6¢ to US90.40¢, while Australian 10-year yields climbed 4.9 points to 4.005 per cent as the yield outlook turned neutral.
“Overall, the bank appears content to adopt a wait-and-see approach as the effects of prior easing filter through to the real economy,” Forex.com analyst Chris Tedder said.
“Thus far, the effects of the bank’s massive easing cycle have been limited. Residential property has surged forward but other parts of the economy continue to lag behind.”
Wall Street was closed for the Labor Day holiday yesterday but European stocks surged overnight after European PMI indices continued to edge away from the contraction zone.
In Tokyo the Nikkei index jumped 2.8 per cent on the firmer European outlook.
The Shanghai composite index initially lagged other markets but rallied to trade per cent up at the close of the ASX as the Chinese services PMI index dropped to an 11-month low.
Gold was steady at $US1392 an ounce, while copper swung between gains and losses following an overnight 1.9 per cent rally to $US7230 a tonne. Spot iron ore rose 0.7 per cent to $US138.70 a tonne on Monday.
“I think we’re still to a large degree running off the fumes of yesterday’s PMI (purchasing managers’ index) data, especially out of China,” OptionsXpress market analyst Ben Le Brun said.
Official manufacturing data released over the weekend and figures from HSBC yesterday showed that in August China’s industrial sector expanded for the first month since April.
Mr Le Brun said economic data released in Australia today had come in lower than expected.
“That might have knocked the stuffing out of what maybe was going to be more of a positive day,” he said.
This exceeded the median market forecast of a $8.5 billion deficit for the three-month period.
Meanwhile, retail data showed sales increased 0.1 per cent in July - short of the expected 0.4 per cent rise.
On the domestic bourse, airline Virgin Australia firmed 1.5 cents to 42 cents, after the competition watchdog granted final conditional approval to its trans-Tasman alliance with Air New Zealand.
Among the major banks, National Australia Bank strengthened six cents to $32.91, ANZ lifted five cents to $30.05, Westpac improved 12 cents to $31.94, but Commonwealth Bank eased 13 cents to $73.55.
In the resources sector, global miner BHP Billiton gained 20 cents to $35.82, and Rio Tinto jumped $1.83 to $61.05.
The broader All Ordinaries index was 10.9 points, or 0.21 per cent, higher at 5,188.9 points.
The September share price index futures contract was up eight points at 5192 points, with 20,578 contracts traded.National turnover was 1.46 billion securities worth $3.7 billion.