SYDNEY (Dow Jones)--The Australian dollar fell against the U.S. dollar Wednesday while bonds also sank, reflecting the impact of higher U.S. Treasury yields. The impact of U.S. President Barack Obama's decision earlier this week to extend Bush-era tax cuts also helped provide support for the U.S. dollar, weighing on any potential gains for the Australian currency. Richard Grace, chief currency strategist with Commonwealth Bank of Australia, said the drop in the Australian dollar was relatively broad-based, with the strategist forecasting even more declines were possible in coming days. "It's had quite a reasonable leg down in the last 24 hours on a broad (U.S.) dollar strength theme running through the market. And as U.S. yields have kicked even higher in Asia trade, that has given dollar a little more strength," said Grace. At 0510 GMT, the Australian dollar traded at US$0.9790, down from US$0.9911 late Tuesday. Against the Japanese yen, the currency traded at Y82.155, up from Y81.73. Grace tipped support for the Australian dollar at US$0.9740 in the short term but added the level might only be a pause before even more declines. Up next for the currency will be Thursday's heavily anticipated November payrolls report in Australia, which also served to keep some traders out of the higher yielding but riskier Australian dollar in the session. Economists expect Australia's unemployment rate will sink to 5.2% from 5.4% a month ago, with official figures due out early Thursday. The numbers are unlikely to have implications on monetary policy in the short term given the country's central bank doesn't meet again until February after holding rates steady at 4.75% at its last meeting on Tuesday. Australian bond prices also followed U.S. Treasurys in Asia trade Wednesday, with Damien McColough, chief interest rate strategist with Westpac, saying the broad decline was showing no signs of abating. "It's one of those days where there is just carnage. We are feeding completely off U.S. Treasury price action that is reflective of a relatively illiquid market. I can't see why you'd put more risk on ahead of our employment (data) here and the price action," said McColough. In addition, a Brisbane-based trader said there remains concern that China may tighten monetary policy in the coming week. Given China is Australia's largest trading partner, the trader said few in the market are looking to buy either the Australian dollar or Australian bonds until more is known about China's potential plans. For the session in the interest rate futures market, the December 3-year bond futures contract lost eight ticks to 94.94, while the 10-year bond lost 15.5 ticks to 94.385. --By Geoffrey Rogow, Dow Jones Newswires; +61-2-8272-4686; geoffrey.rogow@dowjones.com

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