Ski Condos in Colorado Portend Aussie’s Worst Ahead

Sydney native Greg Gibbs bought his first Breckenridge, Colorado, ski condo in 2011 and a second this January, predicting the end of a record period of strength for Australia’s dollar. The Royal Bank of Scotland Group Plc strategist could hardly have timed it better.

Gibbs, who sold his house in Sydney and moved to Singapore last year, bought the first property just two months before the Australian dollar climbed to a record $1.1081 in July 2011. This year, the Aussie has slumped 12 percent to 91.11 U.S. cents as the South Pacific nation’s economy struggles while America’s real estate market recovers.

“When I left Australia, I had to decide where I was going to invest, and thought the Aussie, from a long-term perspective, was around its peak and the housing market in the U.S. was turning the corner,” Gibbs, 47, said in a phone interview. “I love the mountains and skiing and thought Breckenridge was a good fit for me.”

Gibbs sees even more losses ahead for Australia’s dollar, estimating that it will weaken to 83 U.S. cents by year-end. That ties him with RBC Capital Markets as the most-bearish forecaster in a Bloomberg survey of more than 50 strategists.

Biggest Loser

Australia’s dollar is the biggest loser among major currencies this year, tumbling 9.7 percent against a basket of nine peers including the euro, yen and pound, according to Bloomberg Correlation Weighted Indexes. It’s headed for its biggest annual decline based on those indexes since it tumbled 11 percent in 1990.

Pacific Investment Management Co. and BlackRock Inc., which manage almost $6 trillion combined, say the Aussie is either overvalued or due for further losses as the country adjusts to the end of a mining-investment boom and a slowdown in China, which buys a third of its merchandise exports.

The currency’s record 10-month run above $1 ended in May after the Reserve Bank of Australia cut its main interest rate by a quarter-percentage point to 2.75 percent to stoke growth.

Federal Reserve Chairman Ben S. Bernanke accelerated the Aussie’s decline when two weeks later he signaled a willingness to dial back U.S. monetary stimulus. RBA Governor Glenn Stevens lowered borrowing costs again last week, taking the benchmark rate to a record 2.5 percent, from 4.75 percent in 2011.

Economic ‘Transition’

Australian policy makers are struggling to revive confidence among consumers and non-mining businesses that are crucial to fill the growth deficit left by a weaker resources sector. There’s a 65 percent chance that the Sydney-based central bank will lower its benchmark rate again by year-end, data compiled by Bloomberg based on swaps trading show.

“I suspect the RBA can cut again in November if they don’t get the requisite transition from growth led by mining-sector investment to other parts of the economy,” Stephen Miller, a Sydney-based money manager at BlackRock, which oversees $3.9 trillion, said in an Aug. 6 interview.

He estimates the local dollar will fall toward 80 cents over the next nine months as China slows and the U.S. economy recovers. Analysts have cut their Aussie estimates in six of eight months this year to keep pace with the drop so far.

Since predicting it would end the year at $1.05 on Jan. 31, the median estimate of analysts surveyed by Bloomberg has fallen 15 percent to 89 cents. That’s the sharpest cut among 51 currency pairs after the South African rand versus the greenback.

Record Shorts

Futures traders are the most pessimistic ever on Australia’s dollar. The difference in the number of wagers by hedge funds and other large speculators on a decline in the currency compared with those on a gain -- so-called net shorts - - was a record 76,779 on Aug. 6, data from the Commodity Futures Trading Commission in Washington show.

As recently as December, traders had the most-ever bullish bets on the Aussie.

An index of Australian services contracted at the fastest pace in four years in July while retail sales were stagnant in June, reports showed this month.

Gauges for manufacturing and construction have indicated declining activity for more than a year, while official data show the unemployment rate in July held at the highest level since 2009. Business confidence slumped to an eight-month low, according to a National Australia Bank Ltd. survey released today of more than 400 companies taken July 25-31.

The domestic slump is compounded by signs that China, Australia’s largest trading partner, is decelerating. The Asian country’s potential growth rate has fallen to a range of 7 percent to 8 percent, the government said Aug. 1. Last year’s 7.8 percent expansion was the slowest since 1999.

China Headwinds

“Probably the biggest global headwind for Australia is the current slowdown in Chinese growth,” said Adam Bowe, a Sydney-based money manager at Pimco, manager of the world’s largest bond fund -- the $262 billion Total Return Fund. “The currency’s recent fall is definitely a welcome relief for many sectors of the economy, but it’s still elevated and at a level that’s restraining activity, not stimulating activity.”

A June 20 International Monetary Fund report declared the Australian dollar to be overvalued by 5 percent to 15 percent.

The U.S. currency has gained 4 percent this year, according to the Bloomberg Dollar Index, which tracks the greenback against 10 other major currencies.

Growth in manufacturing and services in the world’s largest economy has pushed the U.S. unemployment rate to its lowest since 2008, while sales of new homes rose in June to the highest level in five years.

Slide Reprieve

“The big downshift for the Aussie dollar has probably ended,” Alvin Pontoh, a Singapore-based strategist at TD Securities, said in an Aug. 7 interview. “The RBA doesn’t feel a sense of urgency to lower the currency further” through rate cuts, he said.

TD Securities predicts the Aussie will trade at 89 U.S. cents by Dec. 31, down from a $1.04 forecast at the end of January, data compiled by Bloomberg show.

Gibbs said yesterday that Australia’s dollar may pare its recent losses and climb to as high as 95 U.S. cents over the next month or so, before resuming its slide into the year-end.

The strategist began his property hunt toward the end of 2010, when the Aussie was approaching parity with the U.S. dollar for the first time since it was freely floated in 1983.

By May 2011, when he was ready to buy, it had breached $1.10, allowing him to discard an initial plan to purchase in Keystone, Colorado, and instead opt for a $425,000, two-bedroom condo in Breckenridge, where real-estate data service Zillow Inc. estimates median home prices are more than twice the national average. Early this year, Gibbs says he spent “very close” to $1 million on his second apartment.

“The Aussie is now taking over its previous role of being a shock absorber for the Australian economy,” said Gibbs, who says the currency may drop to as low as 80 U.S. cents. “The U.S. economy is now considerably healed from the financial bubble in 2008 and is poised to perform better over the medium term, and that will help the U.S. dollar strengthen.”

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