Australia, New Zealand dollars fall, bonds rally as US erects wall of tariffs

SYDNEY, April 3 (Reuters) - The Australian and New Zealand dollars fell while bonds rallied on Thursday after U.S. unleashed new tariffs on the rest of the world, raising the stakes in a global trade war that threatens to derail economic growth and fuel inflation.

Stocks dived and investors scrambled to the safety of bonds, gold and the yen on the announcement from U.S. President Donald Trump that he would impose a baseline 10% tariff on all imports including those from Australia and New Zealand and much higher levies on major U.S. trading partners such as China, Japan and Vietnam. MKTS/GLOB

The Aussie AUD=D3 tumbled to as low as $0.6226 before recovering most of the losses and was last down 0.3% at $0.6279. The next major target on the downside is $0.6185, while resistance lies at $0.6300.

The kiwi NZD=D3 plunged to as low as $0.5682 before trimming most losses and was last off 0.2% at $0.5737. It has support at the 55-day moving average of $0.5700.

The fortunes of the Antipodean currencies were helped by the broad weakness in the U.S. dollar, weighed by a dive in Treasury yields to multi-month lows. US/

"We are surprised the A$ is not lower," said RBC Capital Markets Chief Economist Su-Lin Ong.

"We would not fight the risk-off reaction and have argued for some time that the emerging structural shifts to the global rules of engagement, trade and defence alliance and rising protectionism bodes poorly for a medium-sized open economy like Australia."

The Australian dollar is often sold as a proxy for global risk, but there have been signs that the long-standing correlation is slipping. However, it did fare much worse against other currencies. The Aussie lost 0.9% on the euro to hit the lowest in five years AUDEUR=R. It also plunged 1.5% on the Japanese yen AUDJPY=R.

Australia will be subject to the minimum levy under the change, but U.S. tariffs on its biggest export market China could be as high as 54%, clouding the outlook for its economy, which is heavily reliant on commodity exports to China.

The risk of a global trade war has had traders sharply revised up the chance for more policy easing from the Reserve Bank of Australia this year, with swaps implying about an 80% chance of a rate cut in May. The total expected easing this year has also jumped to 80 basis points, from 70 bps previously. 0#AUDIRPR

Domestic bonds rallied, with three-year Australian government bond yields AU3YT=RR plunging 15 basis points to 3.582%, the biggest one-day drop since last August.

The Reserve Bank of Australia on Thursday also warned U.S. trade policies could pose significant headwinds for the global economy, although its financial system was still well-capitalised for such shocks.

Across the Tasman Sea, sentiment was similar given New Zealand was also subject to the minimum U.S. levy of 10%.

"The direct impact on NZ exporters is likely to be manageable as the direct maximum revenue loss is around... 0.2% of GDP," said Kelly Eckhold, chief economist at Westpac New Zealand.

"The indirect impacts will be more significant (and) are harder to assess."

Two-year New Zealand government bond yields NZ2YT=RR fell 6 bps to 3.495%, the lowest since last October.