Commodity prices edge lower in October

EXPORT commodity prices edged down by one per cent in October in foreign currency terms, to be 24 per cent down from their peak in 2011.

The monthly fall in the index compiled by the Reserve Bank of Australia reversed a small rise the month before, and took the index to levels just above the three-and-a-half year low recorded in August.

The main reasons for the the fall in October were declines in the prices of iron ore, gold and crude oil, while base metals and rural goods prices increased in the month.

In Australian dollar terms, which was higher in the month, the index fell by 2.4 per cent in October.

Primary commodities dominate Australia's exports and the ratio of export prices to import prices - the so-called terms of trade - is a major influence on the Australian dollar's value over the long term.

The contrast between lower terms of trade and its apparent inconsistency with the stubbornly high Australian dollar has been mentioned numerous times in RBA speeches and publications over the past year or two.

So has the need for the exchange rate to fall in order to help he economy to "rebalance" as the mining investment boom fades.

Most recently, RBA governor Glenn Stevens said on Tuesday that "it seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today".

The remarks prompted a bout of weakness for the currency.

The foreign currency price index is measured in terms of special drawing rights (SDRs), an average of four major currencies - US dollar, euro, Japanese yen, and British pound.

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