AUD Surges to Two-Month Highs as RBNZ Signals Gradual Tightening

The Australian Dollar (AUD) surged to two-month highs on Wednesday as investors reacted to the Reserve Bank of New Zealand's (RBNZ) monetary policy decision. The AUD/NZD pair jumped about 140 pips to hit fresh two-month highs at 1.2241.

The RBNZ lifted the Official Cash Rate by 25bp to 2.75% as expected, but signaled a more gradual tightening path than markets had priced in. Danske Bank analysts noted that the central bank's comments highlighting 'downside risks to the economy' and 'rate projections remaining well below market pricing' explained the softer currency reaction despite the policy move.

Australia's GDP data released earlier on Wednesday revealed stronger-than-expected economic growth in the second quarter, with the economy expanding at a 0.4% pace from April to June. The year-over-year growth rate was 2.1%, beating expectations of a 0.3% rise. These figures heighten hopes of an RBA rate hike this month, even as the housing market tumbles.