The benchmark S&P/ASX200 index on Friday dropped 42.5 points, or 0.49 per cent, to 8,666.9, while the broader All Ordinaries was down 45.1 points, or 0.5 per cent, to 8,934.3.
For the week, the ASX200 dropped 1.0 per cent, its worst weekly performance since a 3.9 per cent decline in the first week of April.
AMP chief economist Shane Oliver said the fall reflected profit-taking after the index's strong 2.1 per cent gains last week, which had left it in record territory.
Volatility in the local market looked set to persist as traders eyed upcoming inflation data and the local earnings season, Moomoo dealing manager Paco Chow said.
"Macro swings and stock-specific shocks are driving sharp moves across the region," he said on Friday.
But the ASX200 remained on track for a fourth consecutive month of gains after climbing approximately 1.5 per cent since the beginning of July, IG market analyst Tony Sycamore said.
Hawkish comments from Reserve Bank governor Michele Bullock on Thursday led to a shift in interest-rate cut expectations, pricing in two full 25 basis point cuts this year in August and November, he said.
"However, the odds of a third 25 basis point RBA rate cut before the end of the year have eased to 25 per cent from about 65 per cent earlier this week," he said on Friday.
Six of the ASX's 11 sectors finished lower and two closed higher, with industrials, telecommunications and utilities all basically flat.
Energy was the biggest mover, lifting 1.8 per cent as Woodside added 3.7 per cent.
The big four banks continued to lose ground, with Westpac dropping 0.8 per cent to $33.03, ANZ losing 0.7 per cent to $30.22 and CBA and NAB both shedding 0.4 per cent, to $172.87 and $37.51 respectively.
Miners were also disappointed, with BHP losing 1.9 per cent to $40.80, Fortescue dropping 3.4 per cent to $18.35 and Rio Tinto subtracting 0.8 per cent to $118.86/
Goldminers slipped except producer Newmont, which rose 3.81 per cent after reporting a quarterly adjusted net income of more than $2.4 billion.
Energy was on the green after Woodside rose 2.45 per cent, and Santos edged 0.5 per cent higher.
KMD Brands rose 4.35 per cent after Qantas executive Carla Webb-Sear was appointed the Kathmandu and Rip Curl parent company's chief financial officer.
The Australian dollar was buying 65.81 US cents, from 66.16 US cents about 5pm on Thursday.
ON THE ASX:
* The benchmark S&P/ASX200 index on Friday dropped 42.5 points, or 0.49 per cent, to 8,666.9
* The broader All Ordinaries dropped 45.1 points, or 0.5 per cent, to 8,934.3
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 65.81 US cents, from 66.16 US cents on Thursday.
* 96.68 Japanese yen, from 96.74 Japanese yen
* 55.96 euro cents, from 56.23 euro cents
* 48.75 British pence, from 48.76 British pence
* 109.18 NZ cents, from 109.37 NZ cents
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