You would think that sharing a history of enslavement, ostracized by human/mer society, and being generally detested would make both of them develop a strong kinship and alliance with one another. Ironically it seems they hate each other more than they hate the ones who make them suffer. Why is that?

I don't think the hate you're talking about is general opinion in the two populations, it's just some individuals.

Well as a whole? Most of them probably are fine with each other. As far as the hatred between some of them goes though? Simple. They share a border. They also are the two more looked down upon races in society. Orsimer not included. Ironically, this causes them to compete for better social standing. If you want a parallel. In our world many examples can be found. Latino and Black communities conflicting with each other as they struggle to get out of the poorer districts for instance. Micronesians, Tongans and Samoans getting into gang fights over here on Oahu because of the same reason. Limited oppurtunities+low income+high population= High tensions.

Tbh though? I doubt the devs put that much thought into it. I could be wrong though. I could be reaching very hard right now. But this explanation makes sense as far as our world goes and what I, at least, know of the lore.