The dollars of New Zealand, Australia and Canada are among the worst-performing major currencies this year and all face further losses, but the land of Hobbits may offer the best short.
"Despite the fact that they have already fallen a long way, we expect them to weaken further," said Capital Economists in a recent note.
The three nations are large producers of commodities: energy is Canada's top export, iron ore for Australia and dairy for New Zealand. Prices for all three commodities have declined significantly over the past year, worsening each country's terms of trade and causing major currency adjustments.
Worsening the outlook, the greenback is climbing again on the prospect of higher U.S. interest rates later this year. Federal Reserve Chair Janet Yellen confirmed last week that the central bank will tighten its purse strings if the economy continues to strengthen, helping the dollar index hit a three-month high on Monday, which in turn, hit dollar-denominated commodities.
Out of the three, New Zealand's central bank has the most room to ease policy further, a key catalyst for further currency depreciation.
The Reserve Bank of New Zealand (RBNZ) could slash rates by 50 basis points on Thursday— its second consecutive rate cut— as souring milk prices and low inflation hit growth in a country dubbed 2014's "rock star economy."
"From a monetary policy view, we expect three further rate cuts from the RBNZ this year, including one this week. The recent fall in milk prices has been much larger and severe compared to the commodity exports of Australia or Canada," said Khoon Goh, ANZ senior FX strategist.
But analysts warn of a possible short-term spike in the Kiwi: "The IMM futures market is in a record net short position for the New Zealand dollar. In comparison, positioning in the Australian dollar and the Canadian dollar do not appear nearly as stretched," remarked Greg Gibbs, head of Asia Pacific markets strategy at the Royal Bank of Scotland.
That raises the risk that if the RBNZ only cuts rates by 25 basis points or its statement isn't as dovish as hoped, the Kiwi could bounce, said Todd Elmer, currency strategist at Citi.
The market already got a taste of this on Monday, when the Kiwi rallied 1 percent against the greenback after Prime Minister John Key said the currency had fallen faster than expected. But some didn't put much faith in the comments.
"Market participants interpreted this to mean that the central bank would only lower rates another 25 basis points this year instead of the 50 that is priced into the market. We would feel the same if these were RBNZ Governor [Graeme] Wheeler's comments, but they are not," said Kathy Lien, managing director of FX Strategy for BK Asset Management in a Monday note.
By comparison, the Aussie dollar isn't staring down quite as much policy pressure.
Minutes from the Reserve Bank of Australia's (RBA) July meeting on Tuesday revealed the central bank was satisfied with interest rates at their current 2 percent low, possibly indicating a moderation of its easing bias.
ANZ's Goh believes the RBA is done with its rate cut cycle as iron ore prices have stabilized after recent sharp declines.
It's a sentiment echoed by RBS' Gibbs: "The market is less convinced that the RBA will cut rates again," he said. "Recent economic indicators have been more stable this year, showing some pick-up in recent months, suggesting economic activity outside of the mining sector is responding to easier monetary conditions."
"We've got a gentler glide path lower for the Aussie with iron ore prices above $50 and the assumption that the RBA doesn't cut rates again later this year," added Sean Callow, Westpac's senior currency strategist.
While the Canadian dollar also remains vulnerable, especially as oil prices continue to fall, its downside scenario isn't as extreme as the others.
The Bank of Canada cut its benchmark rate by 25 basis points last week—its second cut this year—warning the economy could only return to full capacity in 2017, but banks believe the central bank will remain neutral going forward.
"Canada's recovery is expected through the latter half of the year, as the front-loaded impact of the oil price shock gives way," Scotiabank said in a note last week.
Moreover, Canada has a key advantage.
"One thing that's benefiting Canada is that their largest trading partner, the U.S., is starting to pick up. China is Australia and New Zealand's largest trade partner and we all know the Chinese economy is slowing," said Goh.