Commodity currencies offer good short

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.

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. In Australia the market is less convinced that the RBA will cut rates again.

The Bank of Canada cut its benchmark rate by 25 basis points last week—its second cut this year. One thing that's benefiting Canada is that their largest trading partner, the U.S., is starting to pick up.