Australian Dollar Falls to Four-Month Low as Commodities Slide

By Ron Harui and Candice Zachariahs
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Aug. 7 (Bloomberg) -- The Australian dollar fell to the lowest in more than four months as price indexes for commodities the nation exports slid for a fifth day.

The currency declined for an eighth day before a government report that economists estimate will show jobs growth slowed, adding to signs a cooling economy will allow the Reserve Bank of Australia to reduce the benchmark interest rate. Governor Glenn Stevens said Aug. 5, after keeping borrowing costs on hold, that the ``scope to move toward a less restrictive stance of monetary policy'' was increasing as demand slowed.

``We have indications that the domestic economy is very weak and if on top of that you get indications that commodities are coming off in price it means you have both barrels shooting against the Australian dollar,'' said Steven Englander, a currency strategist at Lehman Brothers Holdings Inc. in New York.

The local dollar traded at 91.03 U.S. cents as of 10:52 a.m. in Sydney from 91.55 cents late in Asia yesterday. It reached 90.65 cents, the weakest since April 2. The currency, known as the Aussie, climbed to 99.56 yen from 99.44.

Australia's dollar fell against 15 of the 16 most-traded currencies as the Reuters/Jeffries CRB Index of 19 commodities and the UBS Constant Maturity Index of 26 raw materials slid for a fifth day yesterday in New York.

Crude oil futures fell as low as $117.11 a barrel, 20 percent below the July 11 record of $147.27 in New York. Crude oil is Australia's fourth most-valuable raw material export. Commodity shipments contribute 17 percent to the nation's economy.

Job Growth

The currency weakened before a report that will say Australian employers hired 5,000 more workers in July, from 29,800 in the previous month, according to the median forecast of 24 economists surveyed by Bloomberg News. The statistics bureau will release the report at 11:30 a.m. in Sydney.

The Aussie has lost 0.9 percent since the RBA kept borrowing costs at a 12-year high of 7.25 percent on Aug. 5 and signaled rate cuts ahead.

The RBA will lower its benchmark rate by 0.83 percentage point over the next 12 months, according to a Credit Suisse Group index based on overnight swaps trading yesterday. The bank will definitely cut rates by 0.25 percentage point at its next meeting in September another Credit Suisse index showed. The RBA usually adjusts the target rate in 0.25 percentage point increments.

A benchmark rate of 7.25 percent in Australia, compared with 0.5 percent in Japan and 2 percent in the U.S., has made the Aussie a favorite with investors seeking higher-yielding assets.

``These trades worked so well for so many and the unwind is underway,'' said Adam Fazio, a currency strategist at CIBC World Markets Inc. in New York yesterday.

`Trend Support'

If the currency breaks below so-called support at its March low of 89.55 U.S. cents, the Australian dollar should weaken to as low as 85.50, Fazio said. Support is a level where buy orders may be clustered.

``Once we get down there we're testing long-term trend support and we really need to reassess whether more losses are in store,'' Fazio said.

Australian two-year government bonds snapped 11 days of gains, pushing the yield up 1 basis point to 6 percent. The price of the 5.25 percent security due August 2010 fell 0.015, or A$0.15 per A$1,000 face amount, to 98.605. A basis point is 0.01 percentage point.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net.