FX.co ★ Australian Shares Fall on Rate Hike Fears

The S&P/ASX 200 index experienced a decline of 0.4%, settling at 8,599 on Tuesday. This drop followed an initial upturn earlier in the day, as market optimism waned due to increasing concerns over a potential interest rate hike potentially occurring as early as February. Both the Commonwealth Bank of Australia and the National Australia Bank have updated their forecasts, suggesting the Reserve Bank may initiate policy tightening sooner than anticipated. This shift is attributed to ongoing inflationary pressures in an economy already operating at near full capacity. Their predictions followed the central bank's decision to maintain the cash rate at its final policy meeting in 2025, despite adopting a more aggressive tone. Market swaps now indicate a 28% likelihood of a February rate increase, 41% for March, and a near certainty for August. The banking sector reflected this cautious sentiment, with significant shares, including Westpac and ANZ, closing lower at -1.1% and -0.4%, respectively. Further contributing to the market's wariness, the Westpac–Melbourne Institute Consumer Sentiment Index saw a 9% month-on-month decline to 94.5 in December, falling back below the optimism threshold of 100 after a brief rebound in November.