SYDNEY, Oct 5 (Reuters) - The New Zealand dollar perked up on Wednesday after the country's central bank raised interest rates as expected and doubled down on its resolve to contain runaway inflation, while its Australian counterpart slipped.
The kiwi dollar rose to as high as $0.5805 before giving up some of the gains to be up 0.4% on the day at $0.5753, having fallen a staggering 16% against the U.S. dollar this year.
The Reserve Bank of New Zealand's (RBNZ) raised its official cash rate (OCR) by 50 basis points to 3.5%, with minutes of the policy meeting showing the committee even debated whether to hike by 75 basis points given intense price pressures in the economy.
The committee also expressed concerns about a weaker kiwi dollar, which "poses further upside risk to inflation over the forecast horizon", if its weakness was to be sustained.
Michael Gordon, acting chief economist at Westpac NZ, said the consideration of a 75 bp move - given it could reduce the risk of a higher peak in the overall OCR cycle - suggests the RBNZ is now eyeing a considerably higher peak than the 4.1% from its August projections.
"We recently revised up our OCR forecast to a peak of 4.5% by next February."
Markets are now pricing in a better than 60% chance the RBNZ would hike by another 50 basis points at its next meeting in November, and have rates peaking at 4.5% by May.
The hawkish commentary contrasted with a dovish turn by the Reserve Bank of Australia which downshifted to a quarter-point hike at its policy meeting on Tuesday, weighing on the Aussie dollar.
The Australian dollar eased 0.2% to $0.6486, after recouping most of its post-RBA losses overnight. Resistance now lies around $0.6520 while support is the recent trough of $0.6364.
Australian 10-year government bond yields eased 6 bps to 3.644%, leaving the spread premium over U.S. Treasuries at only 2 basis points.
The three-year yields remained steady at 3.229%. (Reporting by Stella Qiu; Editing by Lincoln Feast.)
