Another surge in commodity prices has pushed the Australian dollar to a 23-year high. For the second night in a row the price of most major commodities rose, except oil which eased under $US100 a barrel in New York and stayed there in Asian trading this morning.

Much of that rise was due to another weak performance by the US dollar which hit new lows against the euro of more than 1.5120, lower than the record the day before. So the Aussie dollar raced past 94 US cents to trade just short of 94.50 in late morning trade, the highest since March 1984.

Now dealers are again talking about the currency reaching parity with the US dollar, just as they were late last year before the subprime credit crunch intervened and knocked high-yield, high-risk investments lower. And with the Reserve Bank set to lift it’s cash rate to 7.25% next Tuesday, deals are getting positioned, perhaps to snatch some profits after the decision on Tuesday afternoon.

But while this volatility is again gripping world markets, rates in the Australian money markets have tightened, with yields on 180-day bank bills closing at 8.03%, the highest since 1995. Yields on 90-day bills hit 7.84%.

There’s now a gap of 0.84 to 1.03% between the RBA’s cash rate and the two key bank bill rates which are the basis for most bank funding of wholesale lending and deposit rates. If rates go up next Tuesday it will mean we have experienced a 1.10% to 1.20% rise in interest rates in the last eight months, including four rises from the RBA, and including the one offs from the major banks to home loan and other rates. Which is a significant tightening.

The way the bank bill rates are going there’s new pressure on the banks for another out of sequence lift in rates but after being bashed in January and earlier this month, they are a bit gun-shy.