Lower fuel costs should see Australian interest rates converge with those of other developed economies
Lower fuel costs should see Australian interest rates converge with those of other developed economies. Back in the fourth quarter of 2008, the crude oil price averaged nearly A$87 per barrel. Interestingly Australia's average unleaded petrol (ULP) price for the corresponding quarter was A$1.02¢ per litre. Given that the crude oil price has averaged A$91 per barrel for the current quarter to date, and is currently trading at A$77 per barrel, we are hopeful that Australia's ULP price will decline well below A$1.30¢ per litre by Christmas. Should this occur, we believe that it is highly likely that Australia's CPI will breach 2% and could even head lower by the 2015 March quarter. As a result, we feel that Australian interest rates will continue to converge to those of other developed economies
Mark is a Co-Founder and Executive Director of K2 Asset Management. He is also the Joint-CIO for the K2 investment funds and focuses on the portfolio management of the Asian equity strategy.