Markets wrap: Surprise RBA rate hike spooks ASX investors

The ASX was travelling flat on Tuesday until a steeper-than-expected rate hike from the Reserve Bank sent investors fleeing for cover.

A shock interest rate decision sent the Australian dollar soaring but equity investors were scurrying for the stands in a flurry of trading activity on Tuesday afternoon.

The benchmark ASX 200 was drifting along in neutral in the lead-up to the Reserve Bank’s 2.30pm interest rate decision, with a 15 basis point hike to 0.25 per cent largely priced in.

But governor Philip Lowe and his board kicked off a round of selling when he unveiled a steeper-than expected hike to 0.35 per cent, also warning investors that further hikes were likely in the coming months.

The major banks recovered some ground in the final hour. Picture: NCA NewsWire / Jeremy Piper

The local bourse immediately lost 0.6 per cent from a flat position to bottom out at 7299.3.

The major banks recovered some ground in the final hour to help the index limit losses to 0.4 per cent, a decline of 30.8 points to 7316.2.

Westpac and Macquarie Group each finished 0.1 per cent in front at $23.90 and $203.43 respectively, but there was a 0.7 per cent decline for Commonwealth Bank to $102.26, a 0.7 per cent fall for NAB to $32.11 and a 0.2 per cent drop for ANZ to $27.26.

The wider All Ordinaries finished 36 points, or 0.5 per cent, lower at 7587.6.

The Australian dollar, meanwhile, bounced from 70.88 US cents to a peak of 71.5 US cents before settling.

City Index analyst Tony Sycamore said while the RBA would have preferred to stay on the sidelines until after the May 21 federal election, Tuesday’s hike recognised that waiting longer would make it more difficult to tame inflation without sending the economy into recession.

Saxo Markets Australia analysts Jessica Amir and Redmond Wong said markets now expected another eight rate hikes before the year is out, a scenario that could take the cash rate to 2.8 per cent by the year end.

RBA governor Philip Lowe and his board unveiled a steeper-than expected hike. Picture: NCA NewsWire / Jeremy Piper

“But we think rates will rise further than that, given what happened today, plus many companies are forecasting inflation and supply shocks will linger this year,” the pair added.

Stocks that traditionally suffer from higher rates were sold down on Tuesday, including real estate trusts.

Shares in mall landlord Scentre Group fell another 1.7 per cent to $2.86 after a similarly bleak day on Monday.

Mirvac lost 0.8 per cent to $2.36, Goodman Group fell 1.5 per cent to $21.93, National Storage lost 2.8 per cent to $2.48, and Lendlease fell 1.2 per cent to $11.89.

Technology stocks were cushioned from further losses after a strong showing overnight for the Nasdaq on Wall Street, where Facebook owner Meta Platforms and chip-making firm Nvidia each gained more than 5 per cent.

On local shores Xero rose 2 per cent to $91.83, Wisetech Global gained 0.9 per cent to $42.34, Appen jumped 4.6 per cent to $6.65 and Altium was 1.1 per cent ahead at $31.77.

Afterpay parent Block Inc soared by 4.6 per cent to $148.47, while rival payments platform Zip Co added 5 per cent to $1.155 and Splitit surged 10 per cent to 27.5 cents.

Materials stocks were a significant drag on Tuesday’s market with several Asian markets on holiday.

BHP dropped 0.7 per cent to $47.66, Rio Tinto was down 1.5 per cent to $111.85 and Fortescue metals shed 4.8 per cent to $20.61 in a bleak day for the iron ore giants, while steel manufacturer BlueScope lost 2.8 per cent to $19.61.

Lithium miners were mixed, while gold miners such as Newcrest, Northern Star and Evolution lost their lustre.