Australian Dollar Little Changed on Lower Prices of Commodities

By Chris Young

Aug. 18 (Bloomberg) -- The Australian dollar was little changed, near a seven-month low, on speculation declining prices of commodities the nation exports will help weaken the economy.

Australia's dollar may extend its four-week drop after yields on the nation's government bonds declined to the lowest since 2006 on expectations the central bank will cut interest rates from a 12-year high of 7.25 percent next month. Gold, Australia's third-most valuable commodity export, capped its biggest weekly slide in at least 25 years.

``As long as the U.S. dollar remains resilient it will likely keep commodities heavy and weigh on the Australian dollar,'' said Sue Trinh, a currency strategist at RBC Capital Markets in Sydney. ``There's every chance the Australian dollar could fall to 85 U.S. cents before heading higher.''

The Australian dollar bought 86.66 U.S. cents as of 8:46 a.m. in Sydney, from 86.61 cents in late New York trading Aug. 15. It touched 85.93 last week, the lowest since Jan. 22.

The currency has lost 13 percent since reaching a 25-year high on July 15 as the UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials dropped 14 percent over the same period. Lower prices of raw materials may threaten Australian government estimates made June 23 for a record A$212 billion ($183 billion) windfall in the 2008 to 2009 financial year from exporting commodities. That's about a fifth of the economy.

Australian two-year government bonds gained for a fifth day. The yield on the two-year bond fell 1 basis point, or 0.01 percentage point, to 5.77 percent, the lowest since December 2006. Bond yields move inversely to prices.

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