Australian Shares Extend Rebound by Fed's Stance

Australian share prices extended Tuesday's massive rebound on Wednesday after extreme volatility in overseas markets. Market analysts believe this can be attributed to the US Federal Reserve's latest pledge to keep interest rates near zero for at least two years.

How will it further impact and shape the local economy and the Australian dollar? CRI's Australian correspondent Chen Xi has the details.

Local shares in Australia surged by more than three per cent at the opening on Wednesday, building on the previous day's rally in which the market recovered from a severe slump to end with slight gains.

Stocks of energy, mining, financial and consumer discretionary sectors are mostly up with strong gains. Some others are also trading notably higher on fairly aggressive buying after recent heavy losses.

But the global market volatility over the past week has taken its toll on consumer confidence, with sentiment sinking to its lowest level in over two years.

Juliette Saly, a senior Australian market analyst, gives her explanation.

"Basically, there is obviously still a lot of concern about the overall health of the global economy, what we've seen over the last couple of days, was certainly fear-driven selling and panic selling. Yes, there was a lot of panic-driven selling and a lot has been done by institutions."

However, Clifford Bennett, chief economist of Empire Economics, a renowned financial institution in Australia, says he is quite optimistic about the future of the market in the country.

"Certainly on that day there was market volatility, but overall the market was higher and stronger. The market really, in a way, is incredibly short at the moment, and can only go up anyway. I think the market was ready to bottom up in any case. I think this was the situation where the market was pricing a global recession that simply isn't going to happen."

Bennett attributes the industry of resources to the prosperity of Australian domestic economy.

"It's really only because of the resources industry. If you take out the resources industry in the Australian economy, it may well already be in negative two quarters of growth."

In the currency market, the Australian dollar regained traction on Wednesday after the U.S. Federal Reserve left interest rates unchanged and said rates could remain low for another couple of years.

Although the Aussie dollar slipped below parity with the US dollar for the first time in five months on Tuesday, it recovered and increased by around three US cents overnight. Bennett believes it is still the haven currency at present.

"I think the Australian dollar though, you know, it's reason for its high turnover. The interest yield here is quite high, but predominantly because it's a commodity currency."

For CRI, I'm Chen Xi reporting from Sydney, Australia.