Australia’s 10-year government bond yield rose toward 5%, reaching its highest level in nine weeks as broader risks to global energy supplies fueled inflation concerns.
US President Donald Trump played down the prospect of immediate talks with Iran as the two sides exchanged strikes near the Strait of Hormuz, while Houthi militants in Yemen threatened shipping in the Red Sea.
The resulting surge in oil prices reinforced expectations that the Reserve Bank of Australia could tighten policy further after raising the cash rate three times to 4.35%, with markets pricing an 80% chance of another increase by December.
Investors now await Australia's June employment report on Thursday, with forecasts pointing to a 15,000 rise in employment and an unchanged 4.4% unemployment rate.
Inflation data for the second quarter are also due next week, with core inflation expected to accelerate to 3.7% annually from 3.5%, well above the RBA's target band, reinforcing the risk of another rate hike.