Australian shares rose strongly on Thursday after big gains in US markets overnight on the back of signals from the US Federal Reserve of a likely end to interest rate hikes.
In New York, the S&P 500 index jumped 2.3 per cent to 2744, while the Dow Jones industrial average climbed 617.7 points, or 2.5 per cent, to 25,366 – its biggest daily gain since late March.
Australia shares responded in kind, with the S&P/ASX 200 Index up 0.6 per cent to 5759.1 points at 3pm and the All Ordinaries Index up by the same percentage to 5837. Shares in technology, health care and mining companies all performed strongly.
Signs that US interest rates are likely to be lower than had been expected are good news for many Australians.
Australia is an importer and exporter of goods and services, a tourism destination and a buyer and seller of cash and financial products. This means interest rate changes in other countries affect the Australian economy and, ultimately, consumers’ debt repayments and investments.
Australia’s major banks are high users of overseas debt to fund mortgages, credit cards and car loans. If debt markets become more expensive, with higher interest rates, it makes personal loans and mortgages more expensive over time.
Economists say the official interest rate set by the Reserve Bank of Australia is likely to remain unchanged for at least the next year. This is because of the drag on the local economy of falling house prices and high levels of household debt.