By JAMES GLYNN The Australian dollar was lower Monday as investors pruned positions amid fresh talk of financial crisis in Spain. The Aussie dollar's decline comes ahead of a crucial inflation report this week that will shape expectations about a further cut in interest rates in August when the Reserve Bank of Australia, or RBA, next meets. At 0630 GMT, the Australian dollar was at US$1.0301 down from US$1.0404 late Friday, and at Y80.32 from Y81.73. Traders were fixed on Spain after its Valencia region announced plans last week to seek help from the central government to refinance its debt. Downward revisions to Spain's 2013 and 2014 growth forecasts fueled concerns that the country may require a full-blown sovereign bailout. In Australia, core inflation is expected to be weak, giving the RBA room to cut interest rates if it wants. But economists are split about the potential for a cut with those in favor arguing inflation poses no threat and the central bank can cut without worry. Earlier Monday, the Australian Bureau of Statistic reported producer price inflation remained benign in the second quarter. The producer price index rose 0.5% in the three months ended June from the first quarter, and climbed 1.1% from a year earlier. Economists expect a similarly benign second quarter CPI. A survey of 20 economists by Dow Jones Newswires Friday showed an expected inflation rate of 0.1% in the quarter and just 1.6% for the year. With 75 basis points of cuts announced in May and June, other say the RBA indicated it is content to wait for with the cash rate at 3.50%. All eyes will be on RBA Governor Glenn Stevens Tuesday who will give a speech entitled "The Lucky Country." Mr. Stevens has tried to present an upbeat tone recently saying the economy's outlook should be viewed as a glass half full, not half empty. "Traders will be listening attentively for what level of satisfaction the RBA Governor has on the current state of play in the economy," said Tim Waterer, currency strategist at CMC Markets. Comments on China will also be critical given the recent slowdown in Australia's biggest trading partner, he added. David Scutt, a trader at Arab Bank said the Australian dollar has been strong, but it remains prone to global jitters. "Given everything we've seen in recent weeks it's hard to justify having the Aussie at these levels," he said. "It's not a safe-haven, it's simply offering the highest yield out of the majors, "Scutt added. "With commodities off, long-term rates at record lows and inflation going nowehere, the Aussie really should be well below parity."

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