FOREX-US dollar pares rise, Aussie extends fall after China's tariffs

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US dollar hits a 6-month low versus safe-haven Swiss Franc

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Australian dollar extends fall after China's retaliation

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Trump duties lead traders to increase bets on monetary easing

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Investors weigh dollar's status as a safe haven currency

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By Stefano Rebaudo

April 4 (Reuters) -

The U.S. dollar pared its rise after China announced additional tariffs on U.S. goods on Friday, while the Australian dollar, seen as a liquid proxy for the yuan, extended its fall.

Meanwhile, the euro was close to Thursday's close amid a sharp selloff of European banking stocks.

China's finance ministry said it will impose additional tariffs of 34% on all U.S. goods from April 10.

Banking stocks cratered

as investors fretted about growth and priced in far more central bank rate cuts.

Markets fully priced three 25 basis point European Central Bank rate cuts by December, with a depo rate seen at 1.75% from 1.9% late Wednesday. The depo rate is currently at 2.5%.

They also predict four quarter-point interest rate cuts from the Federal Reserve in the remainder of this year, and reduced the odds of further Bank of Japan tightening to 11 bps.

"We see a slight rebound of the dollar, while investors sell risky currencies and rush into safe-haven assets like the Swiss Franc," said Francesco Pesole, forex strategist at ING.

The dollar index, a measure of the currency against a basket of six major peers, plunged 1.9% on Thursday, its worst day since November 2022, and was last up 0.20% at 102.14.

The Swiss Franc jumped 1% versus the euro and hit a 6-month high versus the dollar.

The euro dropped 0.1% to $1.1041, after jumping 1.8% - its biggest daily rise since November 2022 - as high as $1.1147 on Thursday, a level not seen since September 30.

"The single currency is effectively the anti-dollar," said Paul Mackel, global head of forex research at HSBC.

"Sometimes it just naturally goes up by default rather than merit... it expresses a negative view of the dollar in the financial markets," he added, arguing that today's fall in the single currency is a correction after Thursday's jump.

Deutsche Bank warned on Thursday of the risk of a crisis of confidence in the U.S. dollar, saying major shifts in capital flow allocations could take over from currency fundamentals and spark disorderly currency moves.

"I don't think the dollar is about to lose its safe-haven status," HSBC's Mackel said.

"If markets became really concerned about the U.S. hitting a recession, I'm confident that the dollar's safe-haven properties will begin to work quite quickly again."

Investors await the release of a monthly U.S. payrolls report later in the day that will offer clues to the health of the economy and the outlook for monetary easing.

As Chinese markets observed a national holiday on Friday, the dollar was flat at 7.2808 yuan in offshore trade. On Thursday, it had leapt as much as 0.7% to a two-month high at 7.3485.

The Australian dollar dropped 2.2% -- its biggest daily fall since March 2023 -- to $0.6198. Similarly, the New Zealand dollar plunged 1.8% to $0.5688.

"There were relative winners, Mexico and Canada, and losers, China in the reciprocal tariff program," said Thierry Wizman, Macquarie Group's global foreign exchange and rates strategist.

"We like selling AUD and buying CAD. Moreover, the 'reciprocal' tariffs are not the end but rather the beginning of a lengthy process of bilateral negotiations," he added.

The Canadian dollar dropped 0.4% to 1.4148.

The greenback fell 0.35% to 145.51 yen. It slumped 2.2% in the prior session, at one point dipping as low as 145.19 yen for the first time since October 2.

China faces combined duties of some 64%, when also factoring in a tariff of 10% that Trump levied in his first presidential term. Both China and the EU vowed countermeasures, raising the risk of a broader trade war. (Reporting by Stefano Rebaudo; Editing by Shri Navaratnam, Clarence Fernandez and Toby Chopra)