Australia Dollar Falls to One-Week Low as Commodities Slide

By Candice Zachariahs

July 24 (Bloomberg) -- The Australian dollar fell to the lowest in more than a week as prices of commodities the nation exports such as gold and copper dropped.

The currency, know as the Aussie, fell for a second day as an interest-rate cut in New Zealand prompted traders to add to bets the Reserve Bank of Australia will reduce borrowing costs. It slid as the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell to its lowest level in seven weeks as rallying equities and a stronger U.S. dollar dulled their appeal.

``For commodity currencies, it appears the writing is on the wall for a sharp pull back,'' wrote London-based Stephen Koukoulas, head of global foreign exchange and fixed-income strategy at TD Securities Ltd., in a research note. ``A weaker commodities outlook will undermine support'' for the Aussie.

Australia's dollar fell 0.4 percent to 96.09 U.S. cents at 8:57 a.m. in Sydney, from 96.47 cents late in Asia yesterday. It dropped to as low as 95.98, the weakest since July 11, after the Reserve Bank of New Zealand cut its benchmark interest rate by a quarter-percentage point to 8 percent.

Against New Zealand's dollar, Australia's rose to NZ$1.2894 from NZ$1.2834. It earlier touched NZ$1.2952, the highest since November 28, 2000. The currency traded at 103.70 yen from 103.98.

Australia's dollar declined against 14 of the 16 most- traded currencies after gold, its third-most valuable commodity export, lost the most in six weeks. Copper slid to the lowest price in a month. Exports of raw materials contribute about 17 percent to Australia's economy.

Narrowing Yield Advantage

The currency also fell as the yield differential between two-year Australian and U.S. government debt narrowed to 3.72 percentage points, the least since Dec. 27, from 3.92 points yesterday and 4.13 points a month ago.

The RBA will cut its 7.25 percent benchmark borrowing cost by 18 basis points in the next 12 months, according to a Credit Suisse Group index based on interest-rate swaps. That compares with 11 basis points yesterday.

Australian government bonds rose for a second day. The yield on the 10-year bond fell 5 basis points, or 0.05 percentage point, to 6.40 percent. The price of the 5.25 percent bond maturing in March 2019 gained 0.350, or A$3.50 per A$1,000 face amount, to 91.257. Bond yields move inversely to prices.

To contact the reporter on this story: Candice Zachariahs in New York at czachariahs1@bloomberg.net.