Kiwi slips as RBNZ signals gradual path; Aussie firm on strong GDP

The New Zealand dollar fell on Wednesday after the Reserve Bank of New Zealand (RBNZ) raised its official cash rate by 25 basis points to 2.75%, as widely expected, but signaled a more gradual and limited path of future tightening than markets had priced in.

The central bank acknowledged further increases were likely but stressed the pace would be measured, citing significant downside risks to the economy. Its projections now see rates at 2.81% by December and 3.15% by the end of 2027, barely above May's forecast. Markets, however, had positioned for a faster cycle with a peak near 3.5%.

"I'd wrap it up as a slightly dovish hike," said Imre Speizer, a strategist at Westpac, adding that the arithmetic implies no move in October but a possible hike in December.

The kiwi slid 0.7% to $0.5893, extending an overnight decline, while two-year swap rates edged lower. Longer-term yields, however, climbed to five-month highs amid a global bond selloff driven by rising oil prices on fresh Gulf tensions.

Across the Tasman, the Australian dollar held steady at $0.7143 after data showed the economy grew 0.4% in the second quarter, slightly above forecasts of 0.3%. Annual growth slowed to 2.1% from 2.5% but still beat expectations of 1.8% and remained above the Reserve Bank of Australia's (RBA) estimated speed limit.

The stronger-than-expected reading, fueled partly by consumer spending on electric vehicles amid higher petrol prices, prompted investors to raise the probability of an RBA hike this month to 58%, up from 49% before the data. A move to 4.60% is now fully priced for November.

Australian 10-year bond yields surged to highs not seen since mid-2011 at 5.161%, reflecting market conviction that further tightening may be needed to cool inflation.