Dec. 17 (Bloomberg) -- The Australian dollar headed for its first weekly gain in three amid optimism gains in the price of coal, the country's biggest export, will trigger increased demand for the local currency to buy the fuel.

Australia is the world's largest producer of coal. Japanese steelmakers agreed this week to pay more than twice as much for a metric ton of coking coal in 2005-2006 than it currently does to Melbourne-based BHP Billiton.

``This is a very large increase in the price of Australia's single largest export,'' said Alex Schuman, manager of foreign- exchange strategy at Commonwealth Bank of Australia in Sydney. ``The Australian dollar always reacts with a lag to commodity prices so this provides another reason to expect the currency to rise over the coming six months''

The Australian dollar bought 75.69 U.S. cents at 9:44 a.m. in Sydney from 74.7 cents a week ago. The currency fell 0.9 percent from yesterday after the U.S. current account grew less than many economists forecast in the third quarter.

The Australian dollar will rise to 80 cents by the end of the first quarter and 82 cents by the middle of next year, said Schuman. Commonwealth Bank is the nation's second-biggest lender.

$125 A Ton

Officials at Nippon Steel Corp. and Sumitomo Metal Industries Ltd., who declined to be identified, said Dec. 13 they agreed to pay BHP about $125 a metric ton for coking coal next year compared with $56 a ton in 2004-2005. Annual price negotiations in Japan set the global benchmark for the price of coal.

Raw materials account for about two-thirds of Australia's exports which in turn make up about a fifth of the economy.

The Australian Bureau of Agricultural & Resource Economics in Canberra forecast Dec. 13 the country will export A$9.9 billion of coking coal in 2004-2005 and A$6.3 billion of thermal coal, up 34 percent and 42 percent respectively, from overseas sales of the fuel in the 12 months ended June 30, 2004.

Australian government bonds fell for the first day this week. The 6.25 percent bond maturing in April 2015 dropped 0.578, or A$5.78 per A$1,000 face amount, to 108.307. The yield gained 7 basis points to 5.2 percent. A basis point is 0.01 percentage point.

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

Last Updated: December 16, 2004 18:03 EST