Australian equities defied expectations of a post-Federal Reserve selloff, with the S&P/ASX 200 climbing 0.2% to 8,715 by midday on Thursday. The All Ordinaries index also advanced 0.2% to 8,893, according to ABC News' time-stamped market snapshot. This marked a sharp reversal from the pre-market outlook, where ASX 200 futures had pointed to a 63-point, or 0.72%, decline.
The cash market opened approximately 0.25% higher and held its gains through the morning session, suggesting that domestic buyers were not deterred by the negative global signal. Instead, investors focused on sectors likely to benefit from a higher-for-longer interest rate environment, particularly banks and healthcare.
Fed's Hawkish Stance Triggers Mixed Global Response
The catalyst for the initial caution was the Federal Open Market Committee's unanimous decision to raise its target range by 25 basis points to 3.75%-4.00%, citing persistently elevated inflation. The announcement sent the Dow Jones Industrial Average down 1.2% and the S&P 500 lower by 0.5%, while the Nasdaq Composite finished nearly flat. However, Australian markets chose to look past the immediate shock, with buyers stepping in to support key sectors.
According to Market Index's live ASX report, the internal market split was more telling than the headline index. Defense stocks led the gainers at 12:18 p.m.: DroneShield surged 7.2%, Electro Optic Systems advanced 5.8%, and both Austal and Telix Pharmaceuticals rose 4.6%. In contrast, gold, lithium, and energy shares dominated the losers' list. West African Resources fell 7.6%, Pantoro Gold dropped 7.1%, and Elevra Lithium, South32, and Beach Energy each lost between 4.2% and 6.6%.
Rate Expectations and Sector Dynamics
The narrow rally suggests Australian investors did not dismiss the Fed's hawkish stance; rather, they reacted selectively. Higher rate expectations can support bank earnings when asset yields reprice faster than deposit costs, but that advantage diminishes if funding costs rise or borrower quality deteriorates. Resource stocks faced a different set of challenges: a firmer U.S. dollar and weaker precious-metal prices reduced the appeal of gold miners, while energy and lithium names also came under pressure.
Domestic monetary policy now takes center stage. Markets were pricing an 88% probability of a Reserve Bank of Australia rate increase in September by Thursday morning, as reported by ABC. The RBA's official cash rate remains at 4.35%, with the next decision scheduled for 2:30 p.m. AEST on September 29.
Context: Benchmark Still Below August Levels
Despite the midday rebound, the ASX 200 remains well off its recent highs. The benchmark ended August at 9,076.0, according to ASX records. Thursday's level of 8,715 was still approximately 4.0% below that month-end mark, as calculated by TS2 from the exchange's historical series. This suggests the 0.2% intraday gain is a rebound within a larger drawdown, not a full recovery.
Critics of a bullish interpretation point to the timing and breadth of the move. The 8,715 reading was a midday observation, not a closing level, and the resource-heavy side of the market remained weak. If banks surrender their gains or the Australian dollar's post-Fed pressure feeds into the rate outlook, the futures warning may prove to be early rather than incorrect.
The next test comes before the RBA decision: whether bank and healthcare leadership can sustain the benchmark above its morning range while gold and energy shares absorb the stronger-rate signal. That would distinguish a durable domestic bid from a one-session reversal of an overly pessimistic futures print.
