Market Data 
- ASX 200 Index continues its winning streak on gains in miners and energy stocks.
- Citi attributes a portion of the imbalances in iron ore prices to “non-traditional” sources of supply.
- Australian stock market is set to experience a dividend week; a staggering $18.8 billion will be distributed to shareholders.
The ASX 200 Index continues its winning streak that began on March 15, trading higher around 7,810, up by 0.45%, by the press time on Monday. Gains in miners and energy stocks drive this surge. Concurrently, the A-VIX exhibits a notable rise today, climbing 2.35% to 11.14. The All Ords also sees an uptick, rising by 0.70% to 8,082.30.
ANZ predicts that iron ore prices are approaching the bottom, as they have experienced a significant decline since the beginning of the year. Citi, a major brokerage firm, attributes part of the market’s imbalance to “non-traditional” sources of supply.
Investors eagerly await key domestic inflation and consumer spending figures later in the week, seeking insights into the Reserve Bank of Australia’s (RBA) monetary policy trajectory. Additionally, the upcoming dividend week will play a crucial role in shaping the tone of the Australian stock market, with a remarkable $18.8 billion slated to be distributed to shareholders. Additionally, this week is abbreviated due to the impending Easter break.
Gains in the mining and energy sectors were driven by notable performances from Fortescue Metals, surging by 4.71%; West African Resources, rising by 4.59%; BHP Group, up by 1.05%; and Rio Tinto, climbing by 1.32%. On the other hand, major losers included ALS, down by 4.59%; Block Inc., falling by 3.90%; and Life360 Inc., decreasing by 3.58%, as of the latest update.
The RBA’s latest Financial Stability Report highlights a concerning statistic that one in every 20 mortgage holders in Australia is spending more on repayments and other living expenses than their income. However, the RBA remains optimistic about the resilience of the Australian economy, asserting its ability to withstand risks originating from overseas.
In other news, Proteomics International Laboratories has agreed with the University of Oxford to acquire approximately 600 patient plasma samples for a study on endometriosis. These samples will facilitate further clinical validation of the company’s PromarkerEndo diagnostic models for detecting the disease.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high-interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
