Australian Central Bank lifts rates at 0.25%, still way below the yield expectations of short end bonds. Australian Dollar sells off as commodity inflation begins to pick up again.
The Reserve Bank of Australia, falling in line with most Central Banks in their slow (small) response lifting rates to 2.60%, sans the Federal Reserve that, despite being tardy with lifting rates leads the pack of developing countries in shifting rates higher to contain inflation at 3.25%. The issue Australia (and the world) has is that inflation is not just becoming imbedded, it is runaway while their perspective currencies against the U.S. Dollar are being sold off. Considered the share price of a country as imports become even more expensive.
Refer to Chart 1 with the Australian the dollar (yellow line) edging closer to its its pandemic 2020 low of 0.61, now currently at 0.64 as investors dump the Aust Dollar (AUD) for higher yields. This spill over effect of the Australian dollar dump is the Aust 10 YR yield now at 3.71% which is a 8 year high, when in May 2014 the AUD was 0.92 (vertical blue line) and interest rates were 2.50% (white line) . However, the Australian inflation rate was at 2.40% as opposed to it's current 2022 level of 6.10%. The bond markets are indicating that rates will continue to climb, in fact a higher % rate may have to occur if the Central Banks, such as the Australian bank, remain with small interest rate steps to offset inflation.
Chart 2, shows how sticky or imbedded commodities have become, with Commodity index futures, overlaid with West Texas Immediate and the Copper price. Over a seven year period, the reflation spike from the global shutdowns in 2020 has been astounding, mixed with supply chain issues, droughts and war. Commodity inflation has spiked to unprecedented levels. China's slowdown has mostly affected the Copper price and President Biden's SPR oil releases has had only a temporary drop in the oil price, with the price of crude now back over $80 a barrel
(Chart 3) Shows forecasts of the Federal Reserve Bank interest rate hikes to be 4.45% in 2023.
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