Why Shorting the Aussie Is 'Trade of the Century'

Australian currency
Carolyn Hebbard | Getty Images
Australian currency

The resilient Australian dollar, which has overcome global headwinds to stay above parity against the U.S. dollar for most of the past two years, is due for a major correction, according to one analyst who predicts the currency could fall over 40 percent in the next 18 months.

"It's difficult to see any clear major direction in any of the currencies other than the Aussie dollar longer term, which we obviously think looks like the trade of the century, trying to short the Aussie, "Paul Gambles, managing partner at advisory firm MBMG International told CNBC's " Asia Squawk Box " on Monday.

Gambles said he expects the Aussie dollar to fall as low as 60 U.S. cents from the current $1.03 mark within 18 months.

"I would be surprised if the Aussie dollar is still holding above 90-99 US cents by the year-end, but once the move comes then parity to 60 handle could happen within a matter of just a few months," Gambles said.

Earlier this month, the commodity currency came under pressure, falling to a six-week low of $1.0219 last week Tuesday after data showed manufacturing activity in its biggest export market China fell to a two-month low in April. But since then, the Aussie has staged a comeback, rising 0.5 percent.

(Read More: Not Just the Yen, This Currency's Tanking Too )

Headwinds Facing Aussie

Gambles said an intertwining of several factors like a slowdown in China and falling global commodity demand could lead to weakness in the domestic economy . This in turn can push the Reserve Bank of Australia, which has kept interest rates steady this year, to cut rates, which will be negative for the Aussie.

In a pre-budget speech on Monday, Australian Prime Minister Julia Gillard said that a stubbornly high Australian dollar has played a part in government revenue falling to $12.3 billion, less than expected, for this fiscal year that ends in June.

"[The Aussie dollar] upside seems capped and downside seems pretty well unlimited," Gambles said, adding that the Australian economy has become "totally dysfunctional' relying on an "ephemeral" boost from China.

He added that "speculative, yield-seeking inflows that currently inflate the Australian dollar value by some 15 percent will not only disappear, but actually turn negative."

- By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu