Seeing Aussie inflation and interest rates

An Aussie inflation is abating…

Australian inflation rates have eased from 8.4% to 5.6%.

My notes are calling for 4.8% – 5% before (like the Canadian story in the immediately preceding post) inflation makes another move higher.

So, I’ll look for the Australian 2 year bond yields (currently 4.05%) to fall to the 3.60% – 3.35% range before rates embark on their next wave higher.

This move in interest rates should also extend the rally in growth stocks.

Also, watch for the AUD/USD to also decline a little more.

Until then, recent buyers of bonds will make money, perhaps equity like returns?

While that is playing out, I’m then looking for a 3rd wave of inflation in the form of ‘excuse inflation’ as prices of raw materials and finished products remain stubborn with sellers reluctant to discount and adjust.

It should be a short lived 3rd wave of inflation before meaningful demand destruction takes the upper hand and forces the sellers hand.

A later date, we’ll look for much more lower interest rates for the Aussie 2’s, maybe between 1.70% and 2.30%, 15 months from now?

That’s when bond owners will do very well.

June 28, 2023

by Rob Zdravevski

Karri Asset Advisors

rob@karriasset.com.au