The Aussie and Kiwi Surge: Riding Hopes of US-China Trade Relief

The Australian dollar (AUD) and New Zealand dollar (NZD) have quietly gained ground against the U.S. dollar in early 2025, buoyed by cautious optimism around U.S.-China trade negotiations. While the two nations remain locked in a “wait-and-see” stalemate, whispers of tariff reductions and Beijing’s subtle tariff exemptions have injected hope into commodity-linked currencies like the AUD and NZD. This article explores how geopolitical tailwinds—and risks—are shaping the trajectories of these currencies, backed by market data and economic forecasts.

US-China Trade Dynamics: A Fragile Catalyst

The U.S. and China have spent months exchanging rhetorical salvos, with Beijing’s state-backed blogs hinting at openness to talks while official channels deny progress. China’s exemption of U.S. semiconductors and pharmaceuticals from its 125% tariffs—without formal fanfare—suggests a tactical softening. Meanwhile, U.S. GDP shrank by 0.4% in Q1 2025 due to trade uncertainty, while China’s manufacturing PMI hit a 13-month low in April, spurring both sides to seek détente.

For AUD and NZD traders, this tension—and its potential resolution—is critical. Both currencies are heavily tied to commodity exports: Australia’s iron ore and coal, New Zealand’s dairy and beef. A thaw in U.S.-China trade could boost global demand for these goods, lifting their currencies.

Data-Driven Momentum

Recent moves in exchange rates reflect this cautious optimism. The AUD/USD pair rose from 0.66 in late 2024 to 0.685 by April 2025, while the NZD/USD climbed from 0.59 to 0.61 over the same period. Analysts at Goldman Sachs note that a resolution to trade disputes could push the AUD toward 0.72 by year-end, while HSBC sees NZD reaching 0.64 if commodity prices stabilize.

The Risks Beneath the Surface

Despite the rally, the path ahead is fraught. China’s economy, while still growing at 5.4% annually, faces a tightening labor market and weak private investment. Beijing’s reluctance to make concessions—rooted in its priority to preserve political power—means any deal could be delayed until after key domestic policy shifts.

Meanwhile, the Federal Reserve’s stance remains a wildcard. While a weaker U.S. dollar (driven by recession fears) supports AUD/NZD gains, a Fed pivot to rate hikes—a possibility if inflation rebounds—could reverse this trend. Societe Generale warns that a 10% tariff hike on Chinese goods, if announced, could send the AUD back below 0.65 as risk-off sentiment surges.

Commodity Linkages: The Double-Edged Sword

Australia and New Zealand’s exposure to China’s economy cuts both ways. A U.S.-China trade deal could supercharge demand for their exports, but China’s own slowdown—driven by weak real estate and manufacturing—could curb imports. For instance, China’s iron ore imports fell 8% in Q1 2025, pressuring Australian exporters even as trade talks inch forward.

Conclusion: A Delicate Balance

The AUD and NZD’s recent gains are a bet on U.S.-China trade progress, but investors must weigh this against structural risks. Key data points to watch include:
- U.S. tariff decisions (next major deadline: mid-2025).
- Chinese manufacturing PMI (a key gauge of demand for commodities).
- Fed policy shifts, with rate cuts likely if U.S. GDP remains weak.

If trade tensions ease, both currencies could test their 2024 highs. However, a breakdown in talks—sparking further tariffs or capital flight—could reverse the rally. As Alfred Wu, a China trade analyst, notes: “Both currencies are pricing in a best-case scenario. Reality may be messier.”

Investors should remain agile, pairing long positions in AUD/NZD with hedges against U.S.-China volatility. The path to sustained gains lies not just in diplomacy, but in the data.

Data sources: Federal Reserve Economic Data (FRED), State Street Global Advisors, and Goldman Sachs Research.