SYDNEY, May 17 (Reuters) - The Australian dollar nursed losses on Wednesday as little progress in U.S. debt ceiling talks buoyed the greenback and still tame domestic wages growth dampened sentiment, while the kiwi dollar held up better in the run-up to the budget.
The Aussie dipped to a session low of $0.6645 on a wages report that pointed to no quarter-to-quarter acceleration and lessened pressure for the Reserve Bank of Australia to raise rates higher, for now.
The currency had fallen 0.7% overnight to just near its two-week low of $0.6637. It now faces resistance around $0.6690.
Overnight, the lack of substantial progress in lifting the U.S. debt ceiling and solid economic data that had traders trimming bets on rate cuts underpinned the U.S. currency.
The kiwi dollar fared better with a rise of 0.3% at $0.6248, helped a little by market bets that the Reserve Bank of New Zealand would have to raise rates more aggressively to bring inflation to heel. It eased 0.2% overnight.
Markets are on edge in the run-up to New Zealand's budget on Thursday. The government is set to reveal a worse budget bottom line and economic outlook, as it aims to provide relief for those on social welfare assistance, rebuild after the cyclone and boost defence spending, without worsening the inflation problem.
"Local participants are starting to size up the budget, with the bond markets nervous about bond supply and FX markets worried about how credit rating agencies will perceive the budget, hoping for a tick, but fearing the opposite," analysts at ANZ said in a note.
Two-year swap rates jumped 8 basis points (bps) on Wednesday to a one-week high of 5.1250%, on top of an 11 bps climb a day before.
Markets are almost certain the Reserve Bank of New Zealand will raise rates by 25 bps to 5.5% next week, and expect rates could peak at 5.65% later this year. (Reporting by Stella Qiu; Editing by Himani Sarkar)
