The Australian and New Zealand dollars were whipsawed on Wednesday, first falling sharply on news Iran had attacked US bases in Iraq only to bounce as the market wagered an all-out war could still be averted.

The Aussie was actually 0.1% firmer at $0.6877, having slipped as low as $0.6850 at one stage, though trade was so choppy it could turn either way in a blink.

The kiwi also made it back to $0.6647 from a trough of $0.6619, which had been its lowest in two weeks.

The moves were even bigger against the safe-haven Japanese yen, with the Aussie first sinking a whole yen to 73.73 before rallying to last stand at 74.55.

Futures imply around a 50% chance of a quarter-point rate cut to 0.5% when the RBA next meets on Feb. 4, while a move is almost fully priced in by May.

Australian government bond futures rallied, with the three-year bond contract up 2 ticks at 99.240. The 10-year contract gained 3.5 ticks to 98.8000.

The gyrations followed news Iran launched a missile attack on US-led forces in Iraq in the early hours of Wednesday in retaliation for the killing of a top Iranian commander.

Dealers said the market was now waiting to see if US President Donald Trump ordered a retaliation or tried to calm the situation.

Trump later tweeted that "All is well!" and "So far, so good!".

Any escalation would likely be negative for the Antipodean currencies given their economies are reliant on open and free trade, and heavily leveraged to global growth.

One indirect support for the Aussie was that the flare up in tensions had boosted the price of gold to record highs in A$ terms, a major Australian export earner.

Oil prices also surged and they tend to lead prices for liquefied natural gas which is another major export. Indeed, Australia recently overtook Qatar as the world's biggest exporter of LNG.

Still, the risk of a war in the Middle East was a threat to the global economy at a time when Australia's economy was under pressure from massive bushfires raging across the country.