By Swati Pandey
SYDNEY, Oct 10 (Reuters) - The Australian and New Zealand dollars reversed early losses on Thursday as risk-sensitive assets got a fillip from positive news on the Sino-U.S. trade war, but gains were limited as conflicting reports heightened market anxiety.
The Australian dollar AUD=D4 was up 0.35% at $0.6747, rising after the New York Times reported Washington will soon issue licenses allowing some U.S. firms to supply non-sensitive goods to China's Huawei Technologies.
Another report, from Bloomberg, that the White House is looking at rolling out a previously agreed currency pact with China, also raised hopes of a partial deal and helped to lift risk assets.
The Aussie, a liquid hedge for Chinese risk, hit a one-week low of $0.6700 earlier in the day on a previous report that trade talks due to begin on Thursday could be cut short.
"The burden of expectations and back-forth news on trade is likely to keep market participants anxious and the price action noisy as the trade talks get underway," Citi economist Johanna Chua told clients in a note.
"Comments and headlines may keep markets on the edge into the trade talks," Chua noted.
"With due consideration to the expectation built up, we assess the risk for USDCNH is tilted upwards."
The Aussie is very closely correlated to the Chinese yuan CNY=CFXS , which pared some of its early losses but was still down 0.2% in a cautious market.
Without significant progress, U.S. President Donald Trump is set to hike the tariff rate on $250 billion worth of Chinese goods to 30% from 25% next Tuesday.
Closer to home, official data showed approvals for new home loans in Australia jumped in August in a sign that recent rate cuts and the easing of lending rules was boosting activity in the housing market. New Zealand, the kiwi dollar NZD=D4 rose 0.4% to $0.6315 but was still within its recent range.
"There are potentially some rough seas ahead for the good ship NZD this week, and with nothing locally to control the rudder, we will just have to go where the winds take us," said Mike Shirley, senior trader at Kiwibank.
"For the NZD/USD, that should involve a course ranging from the mid-$0.6200s to the mid-$0.6300s - more of the same."
New Zealand government bonds 0#NZTSY= eased, sending yields 3.5 basis points higher.
Australian government bond futures were mixed, with the three-year bond contract YTTc1 up half a tick at 99.435. The 10-year contract YTCc1 was off 1 tick at 99.115.