Australian Dollar Little Changed Before Producer Price Report

By Chris Young

July 21 (Bloomberg) -- The Australian dollar was little changed before a government report that economists forecast will show producer prices increased at a record annual pace in the second quarter.

The currency may gain against the U.S. dollar for the first time in four days on speculation signs of inflationary pressures will prompt traders to reduce bets the Reserve Bank of Australia will cut its benchmark interest rate from a 12-year high. Any gains in the Australian dollar may be limited after a drop in the prices of raw materials the nation exports, including gold.

``The market will take the Australian dollar higher on a high producer price number,'' said Jim Vrondas, manager of corporate business at online foreign-exchange dealer OzForex Ltd. in Sydney.

The Australian dollar gained to 97.08 U.S. cents as of 8:44 a.m. in Sydney, compared with 97.03 cents in late New York on July 18. The currency will be capped this week at 98.49 cents, Vrondas said. That would match the 25-year high reached July 16.

The producer price index advanced 5.3 percent from a year earlier, the most since the series began in 1998, after rising 4.8 percent in the first quarter, according to the median estimate from a Bloomberg News survey of 20 economists. The index climbed 1.6 percent in the second quarter, the survey shows.

The Bureau of Statistics releases the report at 11:30 a.m. in Sydney. A separate release on July 23 may show the consumer price index rose by the most in seven years, according to another survey of economists by Bloomberg.

Rates, Commodities, Bonds

Gains in the currency were limited last week as traders began betting the RBA will reduce its 7.25 percent benchmark borrowing cost after Governor Glenn Stevens said the chances of ``keeping inflation low over the medium term are good.''

The Australian dollar's strength may be limited after the UBS Bloomberg Constant Maturity Commodity Index dropped 7.3 percent last week, the most since the week ending March 21. Exports of raw materials contribute about 17 percent to the national economy.

Australian government bonds fell for a second day, pushing the yield on the 10-year bond up 8 basis points, or 0.08 percentage point, to a two-week high of 6.44 percent. The price of the 5.25 percent bond maturing in March 2019 declined 0.626, or A$6.26 per A$1,000 face amount, to 90.896. Bond yields move inversely to prices.

To contact the reporter on this story: Chris Young in Sydney at cyoung12@bloomberg.net.