Australian Dollar Falls for Second Day on Weaker Commodities

By Chris Young

Aug. 25 (Bloomberg) -- The Australian dollar fell for a second day on speculation a decline in commodity prices will deter traders from buying the currency.

The local dollar traded near a six-month low after the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials slid the most in two weeks on Aug. 22. The Australian dollar also weakened on bets the central bank will cut interest rates at a policy meeting next week.

``A strong U.S. dollar and weaker commodities are a powerful combination against the Australian dollar,'' said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. ``Any rally will be sold ahead of the Reserve Bank of Australia meeting next week.''

The Australian dollar fell 0.5 percent to 86.25 U.S. cents as of 10:37 a.m. in Sydney, from 86.65 cents in New York late last week. It will trade between 86 and 88 cents this week, Morriss said.

Prices of commodities influence the Australian dollar because raw materials account for about 60 percent of the nation's exports. Gold, Australia's third-most valuable commodity export, fell 1.1 percent on Aug. 22 as a rebound in the U.S. dollar eroded its appeal as an alternative investment.

Any losses in the currency may be limited after Aluminum Corp. of China, or Chinalco, got Australian approval to raise its stake in Rio Tinto Group to 11 percent, Morriss said.

``This will remind people of support for Australia's resource base,'' he said.

Traders are certain the RBA will cut its 7.25 percent benchmark interest rate by a quarter-percentage point when policy makers meet on Sept. 2, according to a Credit Suisse Group index based on trading on swaps.

Australian government bonds fell for a second day. The yield on the 10-year note rose 3 basis points to 5.82 percent, according to data compiled by Bloomberg. The price of the 5.25 percent bond due March 2019 declined 0.203, or A$2.03 per A$1,000 face amount, to 95.56. A basis point equals 0.01 percentage point.

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