For the sake of the highly charged Australian stock market, BHP Billiton had better reveal a big upgrade in its mineral resources in its annual report tomorrow. If it doesn’t, there’s not much to support the market except an illusion built on higher commodity prices, which in turn are being driven by the weakening US dollar.

And it would seem many investors haven’t stopped to think that a higher Australian dollar means lower export income and profits: the dollar’s surge has lopped billions off the bottom lines of our mining companies.

BHP jumped above $44 for the first time today, up more than $1 as the punters continued to chase the shares because of these completely unsourced reports of a big upgrade in its reserves, and a huge gold deposit at Olympic Dam.

This has helped drive the Australian sharemarket to new highs, more than 13% above the lows reached last month. The local market has moved past its July 24 record close of 6422.3 points, which was reached only days before subprime credit troubles worsened into the credit freeze.

Yesterday’s positive sentiment was pushed along by a report from the Australian Bureau of Agricultural and Resource Economics (ABARE) that said commodity exports would rise by 4% this year. But some reports neglected to point out that that was half the increase in 2007 and that instead of higher prices, higher volumes would be the driver. Could that mean oversupply in some commodities?

In 2006-07 the value of mining exports rose by more than $15 billion from more than $91 billion to around $107 billion. This year the increase will be around $4.4 billion, on first estimate, which is not much to base the current boomlet on, especially when it will be higher production driving the value up, not a surge in prices.

The increase also depends on the Australian dollar remaining around 84-85 US cents: it’s around 86.50 at the moment and there are many analysts who see it rising to 90 USc by the end of 2007 simply because of the higher yields in Australia and the falling US dollar.

A US dollar that stays around 90c for much of the first half of 2008, would wipe out most of that 4% estimated gain for 2008 commodity exports, as would a repeat of this year’s bad weather in January and February off the WA and Queensland coasts, as well as more port congestion in the coal ports of eastern Australia.

Indeed ABARE warned that “managing the risks associated with fluctuations in the Australian exchange rate remains important for primary producers and exporters.”

It also warned that unit export returns will also fall for minerals and energy exports and a rise in unit export returns for farm commodities will not be enough to offset the trend.