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Asian Shares Lower, but Australian Stocks Soar on Rate Cut Hopes

The steep drop in the Australian Dollar helped export-reliant stocks, such as index-heavyweight drug manufacturer CSL, Ltd., which climbed more than 3 percent to its biggest one-day gain since late December. Lower interest rates tend to drive investors into higher-yielding equity markets.

The major Asian stock indexes are under pressure on Wednesday, bucking the uptrend on Wall Street from the previous session, while increasing odds of a rate cut in Australia are helping the S&P/ASX 200 soar nearly 1.00 percent. The early price action suggests profit-taking may be responsible for the weakness as well as general nervousness ahead of another round of U.S. quarterly earnings reports.

At 06:27 GMT, Japan’s Nikkei 225 Index is trading 22200.00, down 59.74 or -0.27 percent. South Korea’s KOSPI Index is at 2201.35, down 19.16 or -0.86 percent and Hong Kong’s Hang Seng Index is trading 29810.76, 152.48 or -0.51 percent.

In China, the Shanghai Composite is trading 3190.54, down 8.05 or -0.25 percent and Australia’s S&P/ASX 200 Index is at 6378.50, up 59.10 or +0.94 percent.

RBA Rate Cut Hopes Drive Aussie Stocks Higher

Australian shares rose to a more than 11-year high on Wednesday after data showed inflation slowed sharply last quarter, boosting expectations of a rate cut this year.

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The S&P/ASX 200 Index gained as much as 1.1 percent to 6390.50 by 02:50 GMT before backing off, with volumes expected to remain comparatively lower throughout the session ahead of a public holiday on Thursday. The move was on top of a 1 percent gain on Tuesday.

Earlier today, the Australian Bureau of Statistics (ABS) said the headline consumer price index (CPI) was flat in the March quarter, below forecasts for a 0.2 percent increase and the lowest since a negative reading in early 2016.

The CPI report is significant because in early April, the Reserve Bank of Australia (RBA) said in its monetary policy statement that if inflation failed to accelerate as desired and unemployment were to suddenly trend higher, then rates would need to be cut from an already record low of 1.5 percent.

Lower interest rates tend to drive investors into higher-yielding equity markets.

Australian Stock Market Gains Felt Across Several Sectors

The steep drop in the Australian Dollar helped export-reliant stocks, such as index-heavyweight drug manufacturer CSL, Ltd., which climbed more than 3 percent to its biggest one-day gain since late December.

Surprisingly, the prospect of lower interest rates helped boost financials with the Big Four banks, ranging from top lender Commonwealth Bank of Australia to No. 4 lender National Australia Bank, up more than 1 percent each. This was a surprise because lower rates tend to produce lower earnings which tend to weigh on equity prices.

Australian technology shares also rose, mirroring the gains in the U.S. NASDAQ Composite on Tuesday.

A widely expected interest rate cut by the Reserve Bank of New Zealand in May also drove up New Zealand’s benchmark S&P/NZX 50 index was trading at its highest level on record, up 0.70 percent at 10,070.10.

This article was originally posted on FX Empire

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