Australian Dollar Rally Loses Altitude as Oil and Yields Bite

The Australian dollar's multi-week rally has stalled, with AUD/USD retreating to the 0.7140-50 area after reaching a high of 0.7238 last week. The currency's upward momentum, which had gained about 3.5 cents within a 10-week ascending channel, came under heavy pressure due to resurfacing geopolitical tensions in the Middle East, surging crude oil prices, and climbing US Treasury yields. Middle East supply risks escalated following attacks by Yemen's Houthi forces that forced the closure of Saudi Arabia's East-West pipeline, rerouting roughly 4 million barrels per day. Consequently, Brent crude spiked to $107.90 per barrel, fueling inflation concerns and pushing 10-year US Treasury yields close to 5.0%. Hotter-than-expected US August core CPI of 0.3% month-over-month solidified expectations for a 25 bps Federal Reserve rate hike, with market-implied odds reaching nearly 90%. Looking ahead, market focus turns to key monetary policy meetings from the Federal Reserve, the Bank of Japan, and the Bank of England. While the domestic calendar is light apart from RBA Governor Bullock's parliamentary testimony, the AUD remains vulnerable to risk-off sentiment.