By Ron Harui and Candice Zachariahs
July 29 (Bloomberg) -- The Australian dollar fell to near the lowest in more than two weeks and the New Zealand dollar approached a six-month low on concern global credit-market losses will damp growth in the South-Pacific economies.
Australia's currency declined after Australia & New Zealand Bank Ltd. yesterday joined National Australia Bank Ltd. in boosting provisions for delinquent loans and the International Monetary Fund said deteriorating credit conditions will prolong a global slowdown. New Zealand's dollar extended this month's decline to 2.7 percent after home-building approvals slumped to the lowest in almost 22 years.
``Financial risks make the Australian dollar look expensive,'' said Peter Pontikis, a treasury strategist at Suncorp-Metway Ltd. in Sydney. ``The currency is running out of positives. Banks are central to the economy so when they have bad debts it will impact domestic economic activity.''
The Australian dollar declined to 95.60 U.S. cents as of 5:40 p.m. in Sydney from 95.91 cents late in Asia yesterday, when it touched 95.27 cents, the weakest since July 10. Should the currency, known as the Aussie, close below 95.40 cents, it will signal further losses toward 90 cents in coming months, Pontikis said. It bought 102.85 yen from 103.23 yen.
The New Zealand dollar weakened to 73.96 U.S. cents from 74.50 cents late in Asia yesterday. It touched 73.87 cents on July 25, near its Jan. 22 low of 73.85. The currency, known as the kiwi, bought 79.54 yen, compared with 80.20 yen.
IMF Report
Australia's currency fell after the IMF's Global Financial Stability Report released in Washington said banks' balance sheets were under ``renewed stress'' and raising capital would be more difficult as bank equity had ``fallen sharply.'' The IMF, which a year ago failed to foresee the depth of the subprime mortgage collapse, stood by its April forecast for about $1 trillion in losses stemming from the U.S. mortgage crisis.
Australia & New Zealand Bank said yesterday provisions for bad loans are likely to be about A$1.2 billion ($1.1 billion) in the second half of 2008. National Australia Bank last week set aside A$830 million for potential mortgage-related losses. National Australia Bank also said yesterday about 70 percent of investors in its A$850 million bond sale have withdrawn.
New Zealand's dollar traded near its lowest for the year after Statistics New Zealand said today in Wellington that home- building approvals slipped 20 percent to 1,337 in June from the previous month, the lowest since October 1986. Fewer building approvals suggest residential construction is contracting, backing the case for the Reserve Bank of New Zealand to cut interest rates.
`Weak Number'
``It's a weak number, which should weigh on the New Zealand dollar, but as there is a 100 percent probability of a September RBNZ rate cut discounted, downside has been limited for now,'' said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney.
The odds that the RBNZ will lower its 8 percent benchmark interest rate a quarter-percentage point at its September meeting were 100 percent, a Credit Suisse Group index based on interest-rate swaps showed.
The New Zealand dollar's decline accelerated after the New Zealand Herald newspaper reported on its Web site that Guardian Trust suspended new investments and withdrawals in one of its funds, citing a statement from the company.
``The report causes uncertainty over the credit markets in New Zealand,'' said Yuji Saito, head of foreign-exchange sales in Tokyo at Societe Generale SA. ``It's led to kiwi selling.''
The newspaper said the Guardian Mortgage Fund is currently operating below its target liquidity rate of 5 percent because of liquidity difficulties in the market.
`Still Attractive'
Losses in the Australian and New Zealand dollars may be tempered on speculation investors will keep buying the two nations' higher-yielding assets. The difference in yield between 10-year Australian and Japanese government bonds widened to 4.75 percentage points from 4.68 points yesterday.
``Yields in Australia and New Zealand are still attractive based on interest-rate differentials,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``The Aussie and the kiwi are likely to be bolstered.''
Benchmark interest rates of 7.25 percent in Australia and 8 percent in New Zealand compare with 2 percent in the U.S. and 0.5 percent in Japan, making the South Pacific nations popular destinations for international investors.
Australian 10-year bonds fell, ending four days of gains. The yield on the 10-year security rose 5 basis points, or 0.05 percentage points, to 6.30 percent. The price of the 5.25 percent note due March 2019 declined 0.330, or A$3.30 per A$1,000 face amount, to 91.963.
New Zealand's 10-year bonds advanced, with the yield falling 1 basis point, or 0.01 percentage point, to 6.17 percent.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net.
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