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Augustus Buys Canadian, Norwegian Currencies Against Aussie

Date: Monday, July 13, 2009
Author: Bloomberg.com

Augustus Asset Managers Ltd., a London-based money-management firm with about $7.6 billion in assets, is betting that the Canadian and Norwegian currencies will outperform the Australian dollar, which is “overvalued.”

While all three commodity-linked currencies rallied against the U.S. dollar since mid-March as prices of oil and iron ore rose, the Canadian dollar and Norwegian krone lagged behind the Australian currency during the period, dropping 7.1 percent and 11 percent respectively.

“These underperformers, Norway and Canada, have relatively good stories associated with their economies that haven’t been fully reflected in the price,” said Adrian Owens, a London- based fund manager who overseas about $600 million in currency funds at Augustus, in an interview. “The Australian currency is just a bit overvalued in the short-term horizon. There are opportunities.”

Augustus’s JB Currency Hedge Fund gained 9.6 percent in the first half of this year, beating 90 percent of its peers, according to Bloomberg data. The fund gained 8.3 percent last year.

Owens is buying the Canadian dollar against a basket of currencies including the Aussie, the euro and the U.S. dollar. By betting against the basket, rather than a single currency, investors can limit the negative influence of swings in stock markets, he said. Augustus is also buying the Norwegian krone versus the Aussie and Swedish krona.

The Canadian dollar depreciated 0.4 percent this week to C$1.1655 versus its U.S. counterpart in its sixth straight weekly drop. The currency lost 6.2 percent versus the U.S. dollar since the end of May and declined 2 percent to 1.1067 Australian dollars.

Canadian Employment

Canada’s economy, which relies on commodities such as oil and gold for half of its exports, is showing signs of a recovery. Employers eliminated 7,400 jobs in June, the government said today. That was about one-fifth of the median forecast of 18 economists surveyed by Bloomberg News.

“The Canadian dollar looks particularly attractive because in recent weeks we continue to see better-than-expected data,” said Owens. “The price action has been awful. That’s a bit inconsistent with data. Once some fundamentals kick in again, we could actually see the Canadian dollar outperforming the Aussie.”

In Norway, the underlying inflation rate, excluding energy costs and taxes, accelerated to 3.3 percent in June from a year ago, the highest level in eight months, and above the central bank’s 2.5 percent target, according to a Statistics Norway report today. Higher inflation makes it less likely that the central bank will act to weaken the krone, according to Owens.

“Norway is one of the few economies where inflation is still above target,” said Owens. “From a risk-reward point of view, establishing long positions in the krone against the basket of currencies makes sense.”

The krone dropped 1.5 percent to 5.0718 versus the Australian dollar since the end of May. The Norwegian currency fell 5.4 percent to 6.5198 against the U.S. dollar.

Crude oil was still up 32 percent in 2009 after the price dropped 11 percent this week to $58.72 a barrel.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net