RPT-Local factors to hit 'commodity dollar' currencies, trumping global upturn

(Repeats with no changes)

* More weakness in store for Canadian, Aussie, New Zealand dollars

* Monetary policy shifts, higher U.S. yields to weigh

By Anirban Nag

LONDON, Jan 21 (Reuters) - The Australian, Canadian and New Zealand dollars may well lose ground during 2014 despite an improving global economy, with their prospects for once likely to be tied more closely to shifts in monetary policy at home.

All three currencies usually benefit when economic activity picks up, and the World Bank raised its forecast for global growth last week. The countries are big exporters of commodities like iron ore, oil and agricultural goods, not least to China.

But that traditional link may be broken this year, with a slowdown in Australia and Canada leading investors to price in significant chances of policy easing there.

And while the New Zealand economy is holding up well, investors have aggressively priced in the chances of a rate rise in the next 12 months and this could unravel in the next few weeks, pushing the currency lower, analysts said. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

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Analysts said the relationship between the three currencies and riskier assets like commodities came under strain in the second half of 2013 and was likely to fray further - a trend reflected in increased bets against them in the options market.

"The delinking between growth currencies and the global economic cycle will pick up," said Jeremy Stretch, head of currency strategy at CIBC World Markets, a Canadian bank.

"The Australian, Canadian and New Zealand are likely to weaken further. Amongst the three, the New Zealand dollar will perhaps weaken the most, given how aggressively investors have priced in chances of rate hikes."

All three fell against the U.S. dollar in 2013 as investors geared up for the Federal Reserve to start paring back the monetary stimulus that had helped push down the greenback.

MORE WEAKNESS

The Australian dollar AUD=D4 hit a 3-1/2 year low of $0.8756 on Monday, having already lost more than 1 percent this year on top of 14 percent in 2013. The Canadian dollar CAD=D4 , which hit a four-year low of $0.9076 on Tuesday, has already lost 3.5 percent in 2014.

The New Zealand dollar NZD=D4 has weakened in the past week as investors rein in expectations of 100 basis points of rate hikes in the next 12 months. CSRBNZ1Y=CSAU

David Bloom, head of currency strategy at HSBC, said the Fed's stimulus pull-back, which began this month, was likely to fuel a further dollar rally in 2014 as U.S. bond yields rise. Both Canadian and Australian yields are falling, making the U.S. dollar relatively more attractive.

Bloom said that while the Fed was scaling back its bond buying, the Bank of Canada, which meets on Wednesday, was likely to sound more dovish, given recent economic weakness, including rising unemployment and falling prices.

That may see two-year rate differentials between U.S. and Canadian bond yields US2YT=RR CA2YT=RR move in favour of the former and boost the greenback. HSBC expects the U.S. dollar to rise to C$1.12 in the next 12 months from C$1.10 now.

At the same time, slowing growth, subdued inflation and perhaps more rate cuts in Australia may hit the dollar there.

"If market expectations for U.S. rates rise, while uncertainty surrounding growth prospects keep Australian rate expectations low, then this spread (between U.S. and Australian two-year bonds) will point towards a lower Australian dollar," Bloom added.

Australian economic growth is slowing just as China, its biggest export market, expands less than forecast. Australia's slowdown is likely to persist into 2014 as the mining construction boom unwinds, Goldman Sachs said in a report.

"We continue to forecast a weaker Australian dollar given our expectation that unhedged capital inflows are set to become less positive," Tim Toohey, an analyst at Goldman Sachs said. He forecast the Aussie dollar at $0.85 in 12 months time.

Some of the bearishness towards the Australian, Canadian and New Zealand dollars is reflected in the options market.

Risk reversals - a gauge of demand for options on a currency rising or falling - show a bias for Australian, Canadian and New Zealand dollar puts, or bets they will weaken.

In the past week, one-month dollar/Canadian dollar risk reversals have risen to 0.5 vols in favour of U.S. dollar calls from around 0.3 CAD1MRR=ICAP and equivalent reversals for Australian and News Zealand dollars puts are also up

AUD1MRR=ICAP .

(Reporting by Anirban Nag; Editing by John Stonestreet)

((anirban.nag@thomsonreuters.com)(+44 20 7542 8399)(Reuters Messaging: anirban.nag.thomsonreuters.com@reuters.net))

Keywords: MARKETS/FOREX COMMODITY CURRENCIES