July 12 (Bloomberg) -- The Australian dollar had its biggest rally in a month 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 to 75.12 U.S. cents at 4:36 p.m. in Sydney from 74.47 cents in late Asia yesterday, a gain of 0.9 percent, the biggest increase since June 7. It reached 75.15 cents, the strongest 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, a fifth day of gains. Australia is the world's fourth- largest producer of the metal.

``We could see the Australian dollar scratch back up to 77 cents if commodities remain firm,'' said Jack Rosenthal, head of corporate foreign exchange at Custom House Global Foreign Exchange in Sydney.

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. Both were supported by expectations a U.S. government report tomorrow will show the U.S. trade deficit was the fourth-highest on record. The U.S. is Australia's second- biggest export market.

Business Confidence

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 predicting 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 will buy 79 cents by year-end, Horner said.

The yield on the 10-year Australian government bond rose 4 basis points, or 0.04 percentage point, to 5.21 percent. The 6.25 percent bond maturing in April 2015 fell 0.351, or A$3.51 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 02:43 EDT