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Aussie Poised for Weekly Drop as Deutsche Says It May Fall 20%

Feb. 21 (Bloomberg) -- Australia’s dollar was set for its first weekly decline in a month as Deutsche Bank AG forecast the currency may slump more than 20 percent in two years.

The currency touched a one-week low yesterday when a private report signaled Chinese manufacturing is weakening more than economists estimated. The extra yield investors can get by holding Australia’s 10-year government debt instead of U.S. Treasuries was 1.47 percentage points, compared with a high of 2.75 percentage points in November 2010. New Zealand’s dollar was poised to end a two-week advance.

“We can envisage, based on our central forecasts as a house, a decline in the AUD to the mid 60s over the next 2-years without either a domestic or offshore crisis,” Adam Boyton, the chief economist for Australia at Deutsche, wrote in a research note today, referring to U.S. cents. “U.S. 10-year bond yields close to Australian yields could mean an AUD/USD rate in the mid 60s.”

The Australian dollar lost 0.2 percent to 89.91 U.S. cents as of 5:27 p.m. in Sydney after touching 89.37 yesterday, the lowest since Feb. 13. It has slid 0.5 percent this week following a three-week, 4 percent advance.

The yield on the nation’s benchmark 10-year government bonds rose eight basis points to 4.22 percent, having climbed 11 basis points this week. Australia’s yield advantage over the U.S. will narrow to 1.21 percentage points by the year-end, according to the average forecast of economists surveyed by Bloomberg.

New Zealand’s dollar was little changed at 83.05 U.S. cents. It has fallen 0.7 percent since Feb. 14 after gaining 3.4 percent in the prior two weeks.

A Purchasing Managers’ Index for China was at 48.3 this month on a preliminary basis, HSBC Holdings Plc and Markit Economics said yesterday. Economists had forecast the gauge would be unchanged from the previous month at 49.5. Readings below 50 indicate a contraction.

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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