By Wayne Cole

SYDNEY, May 29 (Reuters) - The Australian and New Zealand dollars got a reprieve from selling pressure on Friday as reports of a possible ceasefire extension in the Middle East slugged oil prices and boosted risk assets globally.

Investors were particularly encouraged by reports the deal would include re-opening the vital Strait of Hormuz, though it was yet to be seen how this would work in practice.

Just the chance of an agreement was enough to lift the Aussie back to $0.7161 AUD=D3, having been as low as $0.7098 at one stage overnight. The bounce left it 0.5% firmer for the week but short of resistance at $0.7182.

The kiwi dollar fared even better to reach a two-week top at $0.5935 NZD=D3. It has climbed 1.7% in three sessions and looks set to re-test its May peak at $0.5991.

The currency was aided by a vicious squeeze on short positions against the Aussie, which slid to a six-week trough at NZ$1.2038 AUDNZD=R and well away from a high of NZ$1.2284 hit early in the week.

The reversal began on Wednesday when the Reserve Bank of New Zealand signalled interest rates would have to rise soon to head off the inflationary pulse from energy prices.

Markets now imply an 80% chance the RBNZ will hike its 2.25% cash rate in July, with 3.0% by year-end and a peak around 3.50%. 0#NZDIRPR

Analysts at ASB also expect a first move in July and a top of 3.25%, which they consider to be the neutral rate which neither stimulates nor restricts economic activity.

Economists at Citi and Goldman Sachs think neutral is much lower at 2.50% or 2.75%, and thus pencil in just two hikes in total.

Those at Westpac believe the first rise will not come until September but that the central bank will have to go far further in the long run.

"We expect 25bp hikes in September, October and December," said Kelly Eckhold, chief NZ economist at Westpac. "We will need to see 4%-plus interest rates before CPI inflation is brought to heel."

The Reserve Bank of Australia has already hiked to 4.35%, and recent misses on employment and inflation have led investors to sharply pare the chance of a June hike to just 5%. 0#AUDIRPR

The probability of one final move to 4.60% is put at 70%, likely in the last quarter of the year.