Dollar slumps after debt notice

After ANZ warned of a $1.2 billion bad debt tally, the dollar closed at US95.56c, shy of its post-float high two weeks ago at higher than US98c. The high, close to parity with the US dollar, occurred at the height of market panic over US mortgage giants Fannie Mae and Freddie Mac.

The chief currency strategist at the Commonwealth Bank, Richard Grace, said currency markets were sensitive to the banking fallout because of its possible effect on the domestic economy.

Last week NAB conceded it had an $830 million provision for bad loans due to the credit crisis, triggering a 13.49 per cent plunge in its share price.

Mr Grace said sentiment towards the US economy had bounced slightly from the depths of two weeks ago and markets were concerned about further funding pressure on Australia's banks. This could act as a brake on growth, he said.

The dollar's downward slide could continue this week as building approvals and retail trade figures, due tomorrow and Thursday respectively, have been sluggish recently, analysts said.