ASX 200 Closes Higher as Tech Stocks Surge and RBA Hikes Rates to 15-Year High of 4.6% Amid Inflation

SYDNEY — Australian shares closed higher Tuesday, as a rally in technology stocks helped the market shrug off the Reserve Bank of Australia's fourth interest rate increase of the year, which lifted the official cash rate to its highest level in about 15 years.

The benchmark S&P/ASX 200 index rose 29.6 points, or 0.34%, to finish at 8,709.3. The gain added to a modest advance on Monday, when the index closed at 8,679.7, and helped the market edge further away from three-month lows.

Trading was choppy for much of the session. The index hovered near flat in the morning and briefly dipped into negative territory after the central bank announced its decision, before recovering into the close.

RBA lifts cash rate to 4.60%

The Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.60% from 4.35%, a move widely expected by economists and financial markets. The unanimous decision marks the central bank's first increase after holding rates steady at its previous two meetings and brings total tightening this year to 100 basis points.

In its statement, the RBA's Monetary Policy Board said inflation remained elevated and that some of the upside risks it identified in August were now materializing. The board noted that the conflict in the Middle East had broadened and that global energy prices were much higher than assumed in its August forecasts.

The board also pointed to demand linked to artificial intelligence, which it said was driving rapid growth in global prices for technology-related goods, while Australian businesses continued to face cost pressures.

The board said a further tightening in financial conditions "is warranted to support a return of inflation to target." It said it would raise rates again if needed, though it did not signal the timing or size of any future move.

The central bank acknowledged signs that the economy was slowing. It said consumer spending was gradually easing, housing prices had fallen in most capital cities and new housing loans had declined noticeably.

Bullock says bond selloff orderly

At her press conference following the decision, RBA Governor Michele Bullock said the board had weighed several downside risks, including the housing market, before deciding to raise rates. She said the board had previously identified three main upside risks to inflation: a longer Middle East conflict pushing fuel prices higher, the AI boom and stronger-than-expected capacity pressures in the economy.

Asked whether a sharp global rise in bond yields could force the RBA to raise rates further than it would like, Bullock said: "That's not worrying me at the moment."

"Bond yields are rising quite quickly, but there doesn't seem to be anything disorderly about it," she said. "There's no liquidity issues that we can see. Having said that, we are watching it quite closely."

The RBA is scheduled to release its Financial Stability Review on Thursday.

Ahead of the decision, Moomoo chief market strategist Tapas Strickland said investors would look closely at Bullock's remarks for clues on the bank's next steps. He noted that monthly consumer price data due Wednesday would help determine whether the RBA moves again as soon as its November meeting.

Tech leads the market

Information technology was the strongest sector on the ASX 200, surging 4.6%. Materials rose 1%, while consumer discretionary gained 0.7%. Utilities was the weakest sector, falling 0.8%, and energy lost 0.7%.

Drone communications and metal detector maker Codan led the tech rally, soaring about 21% to a record 63 Australian dollars after issuing a bullish trading update. The company said it expects first-half net profit of at least 160 million Australian dollars, more than double the same period a year earlier, and raised its growth target for its communications business to 30% to 40%. The company said strong demand from conflict regions was driving sales of its unmanned systems technology.

The surge pushed Codan past WiseTech Global to become the most valuable company in the ASX tech sector.

Data center network provider Megaport also rallied after announcing three new AI infrastructure contracts worth nearly 1 billion Australian dollars. The company lifted its fiscal 2027 revenue guidance to between 720 million and 810 million Australian dollars, up from its previous forecast of 620 million to 730 million.

Fund manager Pinnacle Investment Management rebounded after UBS upgraded the stock to "buy," saying a recent selloff tied to concerns about private credit manager Metrics had more than priced in the risks.

Energy and property stocks fall

Energy stocks lost ground even as oil prices remained elevated. Karoon Energy fell for a second straight day after cutting its 2026 production guidance on Monday.

Real estate investment trusts came under pressure from rising global bond yields. Goodman Group, Arena REIT and Charter Hall Long WALE REIT were among the decliners.

Global pressures

The local market's gains came despite a weak lead from Wall Street, where the S&P 500 fell 0.77% and the Nasdaq Composite dropped 0.92% overnight. The yield on the 10-year U.S. Treasury note climbed to its highest level since 2007, as traders increased bets that the Federal Reserve will raise interest rates again in October.

Oil prices stayed high amid the standoff between the United States and Iran. Brent crude settled at about 102.60 U.S. dollars a barrel overnight after President Donald Trump rejected Tehran's offer to reopen the Strait of Hormuz on conditions that included lifting a U.S. naval blockade.

Gold held near a seven-week low after tumbling 4% on Monday, pressured by rising bond yields and expectations of further U.S. rate hikes.

Consumer spending stalls

Economic data released before the RBA decision showed Australian household spending was flat in August, missing economists' forecasts for a 0.4% increase. Annual spending growth came in at 6.8%.

Fuel spending jumped 8.1% after the fuel excise was fully restored. Excluding fuel, total spending would have fallen 0.3%, according to the Australian Bureau of Statistics.

The Australian dollar was little changed at just above 70 U.S. cents.

Investors will turn their attention to monthly inflation figures due Wednesday, which are expected to shape expectations for the RBA's next meeting in November. Markets had priced in roughly a 43% chance of another rate increase at that meeting ahead of Tuesday's decision.

Traders will also watch for developments in U.S.-Iran talks, movements in global bond markets and the RBA's Financial Stability Review later this week.