Australian Dollar Falls as RBA Signals May Cut Interest Rate

By Ron Harui

Aug. 5 (Bloomberg) -- The Australian dollar fell to the lowest in more than three months after central bank Governor Glenn Stevens said inflation may slow, allowing a ``less restrictive stance'' on interest rates.

The currency declined for a sixth day as the Reserve Bank of Australia left borrowing costs on hold at 7.25 percent, with futures contracts showing policy makers will reduce rates in the next 12 months as the economy cools. Australia's dollar, known as the Aussie, also weakened as prices dropped for commodity exports.

``The statement is clearly a sign they're getting close to a rate cut, but it's not so dovish as to give the market further fuel for a very near-term cut,'' said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. ``The weakness in commodities is not helpful. People are definitely in the mood to sell the Aussie.''

The Australian dollar dropped to 92.34 U.S. cents, the lowest since April 16, before trading at 92.45 cents at 3 p.m. in Sydney from 92.79 cents before the RBA's decision and 93.37 cents late in Asia yesterday.

The Aussie has lost more than 6 percent since touching a 25- year high of 98.49 cents on July 16, as signs emerged that the nation's 17-year economic expansion is faltering. The Bureau of Statistics may say on Aug. 7 that employment growth slowed to 5,000 extra jobs in July from 29,800 in June, according to a Bloomberg News survey of economists.

Commodities, Bonds

The RBA's rate decision today was expected by all 24 economists surveyed by Bloomberg. Investors are betting the central bank will cut its benchmark rate by 0.83 percentage point in the next 12 months, up from 0.65 percentage point yesterday, according to a Credit Suisse Group index based on interest-rate swaps.

The Aussie also weakened as the Reuters/Jeffries CRB Index of 19 commodities fell 3.4 percent and the UBS Constant Maturity Index of 26 raw materials slid 3.2 percent, the biggest declines since March 19. Prices of gold and crude oil, Australia's third- and fourth most-valuable raw material exports, contributed to the losses. Exports of commodities contribute 17 percent to the Australian economy.

Australian government bonds rose after the RBA's decision. The yield on the benchmark 10-year note fell 6 basis points, or 0.06 percentage point, to 6.04 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net