AUD/USD Slumps Amid Middle East Tensions and Higher Energy Prices

The Australian dollar is expected to have a quiet week ahead as renewed tensions in the Middle East weigh on risk sentiment. The AUD/USD has pulled back from a seven-week high, settling around $0.70.

The US dollar strengthened in response to reports of Iranian attacks in the Strait of Hormuz and unclear news about an agreement to reopen the critical waterway. Higher energy prices have also revived inflation concerns and solidified expectations that global interest rates will remain elevated for longer.

In Australia, markets are pricing in virtually no chance of a rate increase at the Reserve Bank's upcoming monetary policy meeting next week, following softer-than-expected second-quarter inflation data. Investors assign little likelihood to a move in September, but foresee roughly a 60% probability of a rate hike in November if third-quarter inflation proves stronger than expected.