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SYDNEY: The Kiwi dollar sank on Tuesday after central bank officials dampened expectations for a big interest rate hike, while the Aussie reversed losses as fears of a wider contagion from the debt crunch at Chinese property developer Evergrande subsided.

The New Zealand dollar fell 0.44% to $0.7000, its lowest this month, as comments by Assistant Governor Christian Hawkesby indicated the Reserve Bank of New Zealand (RBNZ) was likely to take a more cautious approach when it meets next month.

It had stabilised to be 0.12% lower at $0.7022 by 2:35 pm (0435 GMT), with resistance in the $0.7041 area and support around $0.6969.

The RBNZ is widely expected to raise interest rates by at least 0.25% at its next monetary policy meeting on Oct. 6, but some analysts had expected a 0.5% hike due to the tight labour market, rising housing prices and red-hot economy.

The central bank delayed raising rates last month after the country was put into a snap COVID-19 lockdown.

Hawkesby's comments "appeared to pour cold water on the prospect of a 50 basis points hike," said Westpac head of New Zealand Strategy Imre Speizer. "Markets are still fully priced for a 25 basis points move though."

New Zealand bonds rose to push yields between 4-and-6 basis points lower across the curve, with 10-year yields 4 basis points lower at 1.878%. That was 55 basis points above Treasuries, reflecting expectations the RBNZ will raise interest rates next month.

The Aussie was 0.26% higher to $0.7270, but still hovering recent lows as weaker iron ore prices and contagion fears from Evergrande put pressure on the risk-sensitive currency.

On Tuesday, markets ignored minutes from a Reserve Bank of Australia (RBA) meeting that showed concern that the spread of the Delta variant could slow the economy's recovery once coronavirus lockdowns start to ease.

The RBA still expects strong growth to resume next year.

Australian 10-year bond futures were three points higher at 98.705, equivalent to a yield of 1.295%. Three-year futures were also slightly higher at 99.635.

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