The Australian sharemarket has had a surprisingly bad day as a result of Fitch cutting its US credit rating coupled with the Australian dollar dropping.
The ASX200 saw all sectors ending in the red, losing 96 points or 1.3 per cent to 7355 on Wednesday.
CommSec said all 11 industry sectors had lost ground and the market was weighed heavily by falls in miners and banks.
It comes as the Australian dollar had its biggest single-day decline since March, finishing at 65.78 cents to the US dollar or down by 0.5 per cent.
AMP economist Shane Oliver said the Reserve Bank of Australia’s decision hold interest rates on Tuesday had some unnecessary impact on the Australian dollar overnight.
“The RBA… left rates on hold and while there’s still an inclination to raise interest rates … I guess they weakened their guidance on that front,” Mr Oliver said.
“It has weight on the Aussie dollar. I would have thought it wouldn’t have enough of an impact, the market only attached a 16 per cent probability of a hike in the first place.
“The reaction was a bit excessive given the monthly market wasn’t anticipating a hike in the first place.”
Mr Oliver said the dip in the Australian dollar value was “not cause for concern” as it sits at 65.78 cents to the US dollar.
“It started the year on a stronger note on around 70 cents and dipped back as low as 65 cents, it’s sort of stuck in a range for 65 cents to 69 cents for last few months,” he said.
“It’s not a major breakdown of the Aussie dollar just yet.”
But it was the Fitch downgrade of the United States sovereign rating to AA++ from AAA overnight which really had the biggest impact on the Australian stock market.
Mr Oliver said the decision would be a worrisome trigger for many investors.
“There’s been an overreaction in our time zones because the downgrade occurred after the US market closed, it has had some impact on the US futures market,” he said.
“There was another episode like this in 20211 where the S & P 500 downgrade was triggered and investors are a little bit nervous something will happen.
“There may be some worries that if the US debt is getting downgraded it might put pressure for the US government to slow down its deficit.
“But many who lived through that period know that at the end of the day nothing really happened.
“The US didn’t default on its debt, it’s not that clamorous.”
Meanwhile, the utilities, property and financial sectors ended Wednesday as the worst performers.
AGL dragged the utilities sector down after falling 4.8 per cent after broker Macquarie downgraded its rating to neutral.
Origin also dropped 1.2 per cent and APA was down 1.8 per cent on Wednesday.
The major banks were also in the red.
Westpac was down 2 per cent, National Australia Bank lost 1.6 per cent, Commonwealth Bank dropped 2.3 per cent, and ANZ declined 2.1 per cent.
The iron ore producers also received a lower iron ore price with BHP 1.1 per cent Fortescue Metals down 2 per cent, and Rio Tinto 0.9 per cent.
PSC Insurance rallied 2.1 per cent after reporting it now expects to deliver $111 million in earnings in financial 2023.
Gold miner Westgold also fell 8.8 per cent in response to its full-year production and cost guidance for 2024.
Mr Oliver said despite Wednesday’s market close leaving all industries in the red, the Australian stock market had been “pretty good” over the last few days after coming of a “period of strength”.