A LEADING Reserve Bank official is confident that the worst is over for commodity prices and Australia will continue to benefit from a strong Chinese economy.
Prices for iron ore, Australia's biggest export, have fallen by about two-thirds in the past two years after reaching highs of about $US180 a tonne at the peak of the mining boom. 
But RBA assistant governor for economics Christopher Kent said commodity prices are still quite high.
"One of the reasons why commodity prices now are much higher than they had been is because demand has expanded over many, many years," he told a UBS Australasia conference.
"So you'd need a really big retraction in demand to bring us back to those levels." Dr Kent said a further substantial fall in commodity prices was possible, but another large drop in demand was unlikely. But if commodity prices were to fall further the Australian dollar would also drop, which would help the local economy adjust, he said.
export opportunities Dr Kent said an additional benefit for Australia is the other opportunities it has to export to China, particularly in services. "Growth in the services sector has been resilient, and should continue to be assisted by a shift in demand toward services as incomes rise," he said.
"Growth in household consumption has also been stable in recent quarters aided by the growth of new jobs." UBS economist Donna Kwok said as China's middle class grows, so will the demand for services and goods that Australia is in a good place to provide.
"We're starting to see a lot of appetite for Australian beef, dairy products, high-end consumer products," she said. "As incomes tend to increase they will be more and more selective about the types of financial advisory services and healthcare services, and business logistics services." Ms Kwok said entertainment was also another area of potential expansion, particularly online.
reserve bank positive It came as the RBA released the minutes from its Melbourne Cup Day meeting, at which it kept the cash rate on hold for a sixth straight month.
In the minutes, the central bank gave an upbeat assessment on the Australian economy but also said that very weak inflation will give it scope to cut the rate if need be.
"Support provided to the economy ... was particularly apparent in the sizeable contribution to growth from net service exports over the year to date," it said.The Australian dollar bounced back above US71c on the release.