Australian Dollar Falls to Lowest in Year Before RBA Decision

By Chris Young

Sept. 2 (Bloomberg) -- The Australian dollar fell to its lowest level in almost a year against the U.S. currency on expectations the central bank will cut interest rate today for the first time since 2001.

The currency also dropped for a third day as investors bought the U.S. dollar after Hurricane Gustav made landfall as a weaker-than-expected storm, easing concern of major damage to rigs and refineries. Australia's dollar slid to its lowest level in five months against the yen as weaker stocks reduced demand for higher-yielding assets funded in Japan's currency.

``The market is nervous about the Australian dollar leading into the Reserve Bank of Australia's decision,'' said Jim Vrondas, manager of corporate business at online foreign exchange dealer OzForex Ltd. in Sydney. ``The U.S. dollar has had a massive move and that is a worry for Australia's dollar.''

The Australian dollar fell to 84.77 U.S. cents as of 8:37 a.m. in Sydney, compared with 85.29 cents in late Asian trading yesterday. It dropped to as low as 84.69, the weakest level since September last year and may decline today to 84.25 cents, Vrondas said.

The currency fell 0.4 percent to 91.59 yen, touching the lowest since April 2.

Governor Glenn Stevens will lower the overnight cash rate target by a quarter point to 7 percent today, according to 22 of 23 economists surveyed by Bloomberg News. The decision will be announced at 2:30 p.m. in Sydney.

The currency dropped against the U.S. dollar as crude oil for October delivery fell 3.8 percent to $111.22 a barrel in electronic trading on the New York Mercantile Exchange. The U.S. is the world's largest consumer of the fuel.

Australian government bonds climbed for a third day. The yield on the 10-year bond fell almost 1 basis point, or 0.01 percentage point, to 5.725 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.048, or A$0.48 per A$1,000 face amount, to 96.281. Bond yields move inversely to prices.

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