Australia, NZ dollars rebound as tariff risk reconsidered

SYDNEY, Oct 13 (Reuters) - The Australian and New Zealand dollars regained some ground on Monday as investors speculated the latest salvoes in the U.S.-China trade war were more show than substance, though increased volatility looked set to be a feature near-term.

Both currencies had crumbled on Friday when U.S. President Donald Trump threatened to slap 100% tariffs on China by November 1, sparking a rush to safe havens.

The Antipodean currencies, with open economies highly leveraged to commodities, tend to be used as hedges against risk at times of global stress.

Yet Trump had sounded more conciliatory on China over the weekend and analysts hoped the tariff threat was a negotiation tactic and some compromise would be found.

"The market reaction to the tariff warning last Friday seems excessive," said Raymond Yeung, chief economist for Greater China for ANZ.

"However, this tit-for-tat is likely to continue for some time, with periodic negotiations, as a new normal in the ongoing trend of China-US economic decoupling."

For now, the hope was enough to lift the Aussie 0.9% to $0.6529 AUD=D3, recovering a chunk of Friday's 1.3% fall. Support lies at $0.6469, with the next rally target at $0.6573.

The risk of greater market volatility supported bonds, with 10-year yields AU10YT=RR down 6 basis points at 4.308%.

The kiwi dollar added 0.4% to $0.5740 NZD=D3, after falling 0.9% on Friday to test support around $0.5710. It now faces resistance at $0.5752 and $0.5844.

The currency was hampered by expectations of further rate cuts at home, with key two-year swap rates falling to their lowest since early 2022 at 2.5226% NZDSM3NB2Y=.

Markets imply an 85% chance the Reserve Bank of New Zealand will ease again in November, having slashed the cash rate (OCR) by half a point to 2.5% last week. 0#NZDIRPR

In contrast, the Reserve Bank of Australia kept rates at 3.60% this month and sounded cautious about easing again, leaving the kiwi down near three-year lows on the Aussie at A$0.8793 NZDAUD=R.

"For now we seen a bottom of A$0.8750 that appears to be holding, even as traders increase their expectation that the OCR ends up closer to a terminal rate of 2.00%," said Mieneke Perniskie, a senior dealer at Kiwibank.

"The RBA appear to be at the end of their cutting cycle, with just 25bp of further easing expected, the timing of which is uncertain."