Australia's economy picked up momentum in the second quarter, exceeding expectations and giving the central bank more support for another interest rate hike as it battles persistent inflation.

Government figures released Wednesday revealed gross domestic product advanced 0.4% in the three months to June, surpassing the 0.3% gain that analysts had predicted. On an annual basis, the economy grew 2.1%, outpacing both the median forecast of 1.8% and the Reserve Bank's own projection of 1.9%, prompting a rise in bond yields.

According to Alex Joiner, chief economist at money manager IFM Investors, the economy may not be decelerating sufficiently for the RBA to meet its inflation targets. He suggested the central bank should consider raising rates either in September or November.

Market pricing, based on swaps data compiled by Bloomberg, now reflects a hike by November, with a September move seen as more likely than not. Traders have also increased the probability of another increase in the first quarter of next year to roughly 80%, up from a previous 62%.

The latest figures indicate the economy has thus far weathered the RBA's attempts to cool activity and curb price pressures. This GDP report represents a crucial piece of data for policymakers as they prepare for their September 28-29 meeting to assess whether further tightening is necessary to restore economic balance.

Diana Mousina, deputy chief economist at AMP Ltd, noted the data demonstrates economic resilience, with rising consumer spending and private demand accounting for most of the growth over the past six months. She believes the RBA will implement one more rate hike this year due to the persistent inflation challenge.

Following the release, the Australian dollar traded around the mid-71 US cent range. The yield on three-year government notes, which are sensitive to policy expectations, extended its earlier climb to reach as high as 4.83%, an increase of 11 basis points, as investors raised their expectations that the hiking cycle would extend into next year.

The RBA held rates steady at 4.35% for a second consecutive meeting last month, following three increases between February and May.

Meanwhile, across the Tasman Sea, New Zealand's central bank lifted its key rate for a second straight meeting while remaining non-committal about future actions. That announcement, which came about half an hour after the GDP data, helped trim the rise in Australian yields slightly.

The GDP figures are compounding pressure on Australian bonds, which are already caught up in a global selloff driven by concerns over escalating government spending, persistent inflation, and resilient growth fueled by the data-center boom.

Following the data release, Australia's policy-sensitive three-year yields hit their highest point since March, while benchmark 10-year bond yields reached levels not seen since July 2011.

Robert Thompson, head of economics and rates strategy at Royal Bank of Canada's Australian unit, observed that while there are some complex factors behind the household spending composition, markets focused on the GDP outperformance, particularly the year-on-year figure, and viewed it as a signal to continue selling. He described the market reaction as seemingly overdone but acknowledged that the momentum from the global selloff is proving difficult to resist.

The RBA is aiming to bring inflation back to the midpoint of its 2-3% target range, a level it hasn't achieved in approximately five years.

Nevertheless, some economists argue that one-off factors played a significant role in producing the stronger growth during the quarter.

James McIntyre, an economist, highlighted that Australia's headline GDP overstated the strength of underlying growth in the first half of the year. He pointed to three factors that distorted the picture: uneven data-center investment, a rebound in mining exports following cyclones, and consumer responses to higher fuel prices. Beneath that noise, he said, growth was lackluster.

With last week's inflation data and today's national accounts now in the books, attention shifts to the August jobs report, due in just over three weeks.

Wee Khoon Chong, senior APAC market strategist at BNY, said that release could prove significant for the RBA's near-term policy assessment, particularly in determining whether labor conditions remain tight enough to reinforce inflation persistence and justify maintaining a hawkish policy stance.

Wednesday's GDP report also revealed that household consumption rose 0.4% in the second quarter, contributing 0.2 percentage point to GDP growth. The household savings ratio increased to 6.5% from 6.4%. Additionally, compensation of employees climbed 1.5%, reflecting continued competition for skilled labor, higher wages, and bonuses and redundancies paid during the quarter, according to the Australian Bureau of Statistics.