The Australian dollar fell below $0.70, but stayed near a three-week high and on track for a third consecutive weekly gain as the US dollar remained broadly weaker, while the escalating Middle East conflict weighed on risk sentiment.
Softer-than-expected US consumer and producer inflation data prompted markets to scale back the likelihood of a near-term Federal Reserve rate hike, reducing support for the greenback.
However, gains in the Aussie were capped by rising geopolitical risks after Brent crude surged about 17% over the past two weeks on fears that prolonged disruptions to shipping through the Strait of Hormuz could reignite global inflation and complicate the policy outlook for major central banks.
In Australia, expectations for further policy tightening remained subdued, with markets pricing only a 20% chance of a rate hike in August and around 60% odds by December.
Upcoming key employment and inflation data due later this month will offer further clues on the policy outlook.