Antipodean Currencies: A Strategic Buy Amid Trade Deal Optimism and Fed Easing Signals

The Australian and New Zealand dollars have long been overshadowed by their major peers, but 2025 presents a unique inflection point. A confluence of geopolitical trade resolutions, regulatory alignment, and shifting U.S. monetary policy is creating a compelling case for investors to position in these undervalued emerging currency pairs—AUD/USD and NZD/USD.

Trade Agreements as a Tailwind for the Antipodean Economies

The ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) Upgrade, which entered force on April 21, 2025, is a cornerstone of this optimism. By streamlining customs, reducing non-tariff barriers, and enhancing digital trade frameworks, the agreement is projected to boost bilateral trade volumes by 15–20% over the next three years. For Australia, this means increased demand for commodities like iron ore and liquefied natural gas (LNG) in ASEAN markets, while New Zealand gains access to Southeast Asia's growing consumer base for dairy and agricultural exports.

Indonesia's impending OECD accession further amplifies this dynamic. As Southeast Asia's largest economy, Indonesia's alignment with OECD standards will likely spur regulatory harmonization and investor confidence, making it a more predictable partner for both Australia and New Zealand. This, in turn, supports long-term capital flows into the region, indirectly bolstering the AUD and NZD.

U.S. Tariff Risks and the Fed's Easing Signal

While U.S. tariffs under President Trump's “friendshoring” agenda pose short-term headwinds, their impact on the Australian dollar (AUD) has been mixed. A 10% tariff on Australian beef and processed rare earth minerals initially pressured the AUD, but the currency has shown resilience. By June 2025, the AUD/USD pair had recovered to 0.6560, supported by improved trade negotiations with Japan and China. The Reserve Bank of Australia (RBA) has cautiously signaled potential rate cuts in 2026, prioritizing inflation stabilization over aggressive easing, which could further stabilize the AUD.

For New Zealand, the OECD's warning of a global growth slowdown (projected at 2.9% in 2025) introduces caution. However, the AANZFTA Upgrade's focus on SMEs and sustainable development could offset some of these risks by diversifying trade routes and reducing reliance on the U.S. market.

Strategic Positioning: Leveraging Policy Divergence

The U.S. Federal Reserve's pivot toward easing is a critical catalyst. Fed Governor Christopher Waller's recent comments suggest a potential rate cut at the July 2025 meeting, with further cuts likely in 2026. This contrasts with the RBA's and Reserve Bank of New Zealand's (RBNZ) more measured approaches, creating a policy divergence that favors the AUD and NZD. The U.S. Dollar Index (DXY) has already weakened to 97.50, reflecting waning confidence in the USD as a safe haven amid trade uncertainty.

Investors should also consider the indirect benefits of China's economic rebalancing. While Australia's trade with China remains robust, the shift toward ASEAN as China's largest trading partner reduces exposure to a single market. This diversification, coupled with Indonesia's OECD membership, positions the AUD as a more stable asset in a fragmented global trade environment.

Investment Thesis and Risk Mitigation

For those seeking exposure to emerging currency pairs, the AUD/USD and NZD/USD offer a compelling risk-reward profile. The AUD's strengthening against the USD, supported by trade deal optimism and potential RBA easing, makes it a strategic buy at current levels. Similarly, the NZD's exposure to ASEAN growth and its role in the AANZFTA Upgrade provides a floor for its valuation.

However, risks remain. A U.S. recession, currently estimated at 40% by some economists, could delay Fed easing and exacerbate USD strength. Additionally, China's retaliatory measures against U.S. tariffs could indirectly affect Australia's trade-dependent economy. Investors should hedge against these risks by using options or currency ETFs that allow for tactical adjustments.

Conclusion

The Antipodean economies are navigating a complex but favorable landscape. Trade agreements like the AANZFTA Upgrade and Indonesia's OECD accession are laying the groundwork for sustained economic integration in the Indo-Pacific. Meanwhile, the Fed's easing cycle and policy divergence with Australia and New Zealand create a tailwind for these undervalued currencies. For investors with a medium-term horizon, the AUD and NZD represent a strategic opportunity to capitalize on geopolitical realignment and central bank policy shifts.