By Candice Zachariahs Dec. 14 (Bloomberg) -- The Australian and New Zealand dollars pared declines after the Dubai government said Abu Dhabi will provide it with $10 billion of funds to help it meet its debt obligations. The funds will enable Dubai to repay the $4.1 billion of state-related Nakheel PJSC’s Islamic bonds maturing today. The two South Pacific currencies earlier fell on speculation the Federal Reserve is moving closer to increasing U.S. interest rates after reports last week showed retail sales and consumer confidence increased more than economists forecast. “The news on Dubai will likely support risk currencies like the Aussie and kiwi,” said Phil Burke, chief foreign- exchange dealer at JPMorgan Chase & Co. in Sydney. “It’ll help risk, but the focus is likely to return to U.S. yields because that’s the main driver.” Australia’s currency fell 0.2 percent, after losing as much as 0.8 percent, to 91.10 U.S. cents as of 4:31 p.m. in Sydney from 91.27 cents in New York on Dec. 11. The currency slipped 0.6 percent to 80.83 yen. New Zealand’s dollar traded at 72.56 U.S. cents from 72.51 cents, and bought 64.37 yen from 64.60 yen. Australia’s currency dropped to a three-week low of 89.47 cents on Nov. 27 as Dubai World sought a standstill agreement on its debt. Nakheel PJSC is the property unit of Dubai World. Benchmark Rates Benchmark interest rates are 3.75 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, climbed last week on speculation Fed Chairman Ben S. Bernanke will raise the target for overnight loans between banks next year. Traders are betting on an almost 60 percent chance of an increase by the Fed’s meeting in August, according to Bloomberg calculations. U.S. retail sales rose 1.3 percent in November, more than double the 0.6 percent median estimate in a Bloomberg survey. The Reuters/University of Michigan preliminary index of consumer sentiment for December rose to 73.4 from 67.4 the month before. ‘A Lot Sooner’ “The market is starting to think about Fed policy and whether we might see the Fed hike rates a lot sooner than what people had factored in,” said Khoon Goh, senior economist at ANZ National Bank Ltd. in Wellington. “That’s put the kiwi and Aussie on the back foot,” he said, referring to the currencies by their nicknames. The Australian dollar will find buyers toward the 90-cent level, while New Zealand’s currency is likely to be supported near 72 cents, Goh said. Futures traders reduced bets that Australia’s dollar will gain against the U.S. currency, figures from the Washington- based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the Aussie compared with those on a drop -- so-called net longs -- was 46,682 on Dec. 8, compared with net longs of 48,438 a week earlier. New Zealand’s dollar slipped versus the yen as Real Estate Institute of New Zealand Inc. said today that house prices rose 0.2 percent last month, while the number of properties sold fell to 6,056 from 6,091 in October. Retail spending in New Zealand stalled in October amid a decline in spending at supermarkets, clothing stores and fuel outlets. Sales at supermarkets, which make up a fifth of all spending, fell 1.1 percent from September, seasonally adjusted, Statistics New Zealand said today. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 4.68 percent from 4.65 Dec. 11. Australian government bonds were little changed with the yield on 10-year notes at 5.53 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security maturing in March 2019 rose 0.149, or A$1.49 per A$1,000 face amount, to 98.018. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

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