The Australian dollar is in the midst of its biggest slide since the global credit crunch hit in mid-August, with gathering fears that the second round of the subprime mortgage crisis will prove deeper and nastier than the first, driving the sell off of high yield currencies, like the Aussie and NZ dollars, and commodities.

Gold, which is supposed to be benefiting from the current bout of instability, shed more than $US25 an ounce overnight to around $US807 an ounce, copper fell to a seven month low as China’s appetite for the metal slowed and inventories surged to new highs. Oil prices fell to $US94.70 with analysts saying it will follow gold and other commodities lower as financial investors take profits from their investments.

The Australian dollar traded around 87.88USc this morning, down from the 92.85USc on Friday — its lowest point since late September. The Japanese yen continued to firm and the US dollar had its biggest one day rise against the euro for more than a year as investors sold riskier investments.

Paradoxically the flight to quality was into the US dollar and US treasury bonds, well away from the markets and the lurking monster in the banking sector.

Copper tumbled to the lowest price in seven months after China’s imports of the metal fell 5.7% in October. New York copper futures for December fell 3.6 US cents to $US3.1095 a pound after hitting a low for the day of $US3.035.

That’s a move that should be cutting the price of BHP Billiton and Rio Tinto as copper is a major earnings driver for both. Copper prices have fallen more than 16% since 1 October on the growing worries about the US.

If the US economy continues to weaken, world copper prices will struggle next year, even if China continues buying at its present level or more. That also applies to the prices of other industrial metals — zinc and lead prices have weakened in recent days.