Asset managers have increased bearish bets against the Australian dollar to a record high as escalating US-Iran tensions and concerns over an AI-driven equity correction prompt investors to reduce exposure to risk-sensitive currencies, according to a report by Bloomberg.

Net short positions rose by 12,901 contracts to 129,065 in the week ending 20 October, marking a seventh consecutive weekly increase. The positioning shift coincided with a broader selloff in global equities and renewed demand for the US dollar as a safe-haven asset.

Rodrigo Catril, FX strategist at National Australia Bank, said the combination of heightened geopolitical tensions and the prospect of a correction in AI-related equities had strengthened the case for shorting risk-sensitive currencies.

Leveraged funds, however, moved in the opposite direction, adding 2,628 contracts to their net long Australian dollar positions, ending four consecutive weeks of reductions.

The currency has retreated from a four-month high reached in September to trade around 70.33 US cents, as investors reassess the outlook for global risk appetite and Australian monetary policy.

Attention is now turning to Australian inflation data ahead of the Reserve Bank of Australia's 3 November policy meeting. Swaps markets are pricing in a 64% probability of a 25-basis-point rate increase after Assistant Governor Sarah Hunter indicated that the central bank's efforts to contain inflation were not yet complete.

Catril said stronger-than-expected inflation could force bearish investors to unwind short positions, while a softer reading could trigger further Australian dollar weakness.