July 12 (Bloomberg) -- The Australian dollar advanced to its highest in a week following gains in the price of metals such as aluminum, copper and gold that the country exports.

A rise in metals prices typically spurs buying of the Australian dollar because almost 60 percent of the country's exports are raw materials. The currency also advanced against the U.S. dollar in line with the euro, which is at its highest in two weeks, said Richard Franulovich, at Westpac Banking Corp.

``There's certainly helpful developments on the commodity front for the Australian dollar,'' said Franulovich, a New York- based currency strategist. ``The currency could test higher.''

The Australian dollar rose 0.6 percent to 75.03 U.S. cents at 3:02 p.m. in Sydney from 74.47 cents in late Asia yesterday. The currency earlier climbed to 75.15 cents, the highest since July 4, and may extend gains to 75.20 cents, Franulovich said.

Copper futures for September delivery rose 0.3 percent to $1.561 a pound on the Comex division of the New York Mercantile Exchange, the fifth straight gain. Australia is the world's fourth- largest producer of the metal.

The Australian dollar and euro had a correlation of 0.97 in the past three years, suggesting they move almost lock-step against the U.S. currency. The Australian dollar and euro were supported by expectations a U.S. government report tomorrow will show the U.S. trade deficit was near a record. The U.S. is Australia's second-biggest export market.

Business Confidence

While most of the move higher in the Australian dollar can be attributed to a strengthening euro the currency was also supported by a rise in business confidence, said John Horner, a currency strategist at Deutsche Bank AG in Sydney.

The business sentiment index rose 1 point last month to a reading of 5, seasonally adjusted, according to a survey of about 400 companies by National Australia Bank Ltd., released today in Melbourne. A reading above zero signals companies expecting their industry to improve outnumber those expecting a slowdown.

``Business confidence remains at high levels indicating the economy has picked up in the past couple of months,'' said Horner. ``This is helping the Australian dollar at the margin.''

Deutsche Bank forecasts the currency to buy 79 cents by year- end, Horner said.

The yield on the 10-year Australian government bond rose 3 basis points, or 0.03 percentage point, to 5.20 percent. The 6.25 percent bond maturing in April 2015 fell 0.240, or A$2.40 per A$1,000 face amount, to 107.958. Bond yields move inversely to price.

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

Last Updated: July 12, 2005 01:20 EDT