July 25 (Bloomberg) -- The Australian dollar fell, posting its first weekly loss in more than a month, after National Australia Bank Ltd. set aside more funds for U.S. credit losses. The New Zealand dollar fell for a second week.

Australia's currency touched a two-week low after the nation's largest bank by assets increased provisions for collateralized debt obligations, raising concern local lenders will write downs more losses from U.S. mortgages than was forecast earlier. New Zealand's dollar traded near its six-month low on speculation the central bank will keep cutting interest rates.

``The news may spur worries that the U.S. subprime-mortgage crisis is adversely affecting the Australian banking sector,'' said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. ``This is negative for the Aussie.''

Australia's dollar fell to 95.63 U.S. cents at 5:48 p.m. in New York, from 95.85 cents yesterday and 97.02 cents on July 18. The currency was little changed at 103.11 yen, from 102.88 yesterday and 103.75 yen at the end of last week.

The Aussie declined for a fourth day against the U.S. currency after gold, Australia's third most-valuable commodity export, dropped 3.64 percent this week, heading for a second weekly decline. Exports of metals and other raw materials account for about 17 percent of Australia's economy.

New Zealand's dollar dropped to 74.17 U.S. cents from 74.29 cents yesterday and 76.12 cents on July 18. It earlier touched 74.05 cents, close to its six-month low of 73.87. The currency, known as the kiwi, bought 79.97 yen, from 79.74 yen yesterday and 81.40 yen a week ago.

`Unprecedented'

The Australian currency traded near a one-week low against the yen after Melbourne-based National Australia Bank set aside A$830 million ($796 million) more to cover CDO losses, on top of the A$181 million it reported in March.

The lender said in a statement today its A$1.2 billion portfolio of collateralized debt obligations is now 90 percent provisioned.

``This provision reflects the unprecedented conditions in global credit markets and, in particular, the rapid deterioration in the U.S. housing market,'' John Stewart, the bank's chief executive officer, said in the statement.

Benchmark interest rates are 7.25 percent in Australia and 8 percent in New Zealand, compared with 0.5 percent in Japan and 2 percent in the U.S., making the two South Pacific nations popular targets for so-called carry trades.

Carry Trades

In a carry trade, investors get funds in a country with low borrowing costs and invest in another with higher rates, earning the spread between the two. The risk is currency market moves erase those profits.

The New Zealand dollar fell against the U.S. dollar and the yen after the central bank reduced interest rates yesterday for the first time in five years.

The kiwi extended its losing streak to four days after Reserve Bank of New Zealand Governor Alan Bollard said policy makers ``would expect to lower rates further'' to boost an economy on the brink of recession.

``We revise our New Zealand dollar forecasts in light of the RBNZ decision yesterday to begin its easing cycle,'' Ashley Davies, a currency strategist in Singapore at UBS AG, the world's second-largest currency trader, wrote today in a note to clients.

UBS forecasts the New Zealand dollar at NZ$1.33 versus the Australian dollar in three months, compared with its previous forecast of NZ$1.27, Davis wrote.

Rate Bets

New Zealand's currency traded at NZ$1.2875 versus the Australian dollar from NZ$1.2903 yesterday and NZ$1.2745 on July 18. The kiwi touched NZ$1.2969 yesterday, the lowest since November 2000.

The New Zealand dollar has lost 8.8 percent since reaching 82.13 U.S. cents on March 14, the highest since it was allowed to trade freely 23 years ago.

Traders are betting the RBNZ will cut its benchmark rate by 135 basis points in the next 12 months, compared with a forecast of 129 basis points yesterday, according to a Credit Suisse Group index based on interest-rate swaps. A basis point is 0.01 percentage point.

Australian government bonds gained for a third day. The yield on the 10-year note fell 14 basis points to 6.24 percent, according to data compiled by Bloomberg. The price of the 5.25 percent note due March 2019 rose 1.016, or A$10.16 per A$1,000 face amount, to 92.349.

New Zealand's 10-year bonds also advanced, with the yield falling 3 basis points to 6.08 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.

Last Updated: July 25, 2008 18:00 EDT