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%.