Australia, NZ dollars becalmed, few ripples from budget update

By Wayne Cole

SYDNEY, Dec 17 (Reuters) - The Australian and New Zealand dollars were left to drift on Wednesday as U.S. economic data passed with little impact, while an update on the Australian government's budget hardly budged the dial on interest rates.

The Aussie idled at $0.6630 AUD=D3, having found support at $0.6616 overnight. The currency has stalled since hitting a three-month top of $0.6685 last week and a break under $0.6600 would suggest its uptrend was over for now.

The kiwi dollar held at $0.5778 NZD=D3, after dipping as low as $0.5759 overnight. It needs to get back above last week's top of $0.5831 to keep the rally going.

In its mid-year fiscal update, the Australian government said its budget deficit for 2025/26 would now likely be slightly smaller than first projected at A$36.8 billion ($24.38 billion) thanks to fatter tax receipts.

The small change should not require any increase in its planned A$150 billion of bond sales for the year to June 2026, but the lack of spending cuts does put the onus on monetary policy to restrain inflation in the near term.

Investors are wagering the Reserve Bank of Australia will have to raise its 3.6% cash rate by June to bring inflation under control. 0#AUDIRPR

Analysts at CBA and NAB this week shifted their forecasts to predict a hike in February, while Westpac sees rates on hold with risks on both sides.

"We think that rate hike talk is premature," argued Luci Ellis, head of economics at Westpac in a note.

"We cannot rule out that more near-term bad news on inflation spooks the RBA and induces a near-term hike, but in our view, it is not the most likely outcome."

The monthly consumer price report for November is due on January 7, while the more complete figures for December and the entire fourth quarter are out on January 28.

A quarterly rise of 0.8% or higher for trimmed mean inflation might be enough to get the RBA to pull the trigger when it next meets on February 3.

Over in New Zealand, the new head of its central bank has pushed back on market pricing for hikes later next year, and a move by July is now priced at a 50% chance with September around 90%. 0#NZDIRPR

($1 = 1.5094 Australian dollars)