On Monday, March 16, the Australian share market declined as escalating Middle East conflict and looming domestic interest rate hikes dampened investor sentiment. The S&P/ASX 200 index dropped 0.6 percent to 8,565, recovering slightly from steeper early-session losses.
The downturn is driven by the escalating US-Israel war on Iran, which has pushed crude oil futures past $100 a barrel following threats from Tehran to close the Strait of Hormuz. Consequently, Australian business sectors and consumers are bracing for a renewed inflation shock.
Energy Gains Offset Mining Losses
Energy companies acted as the primary shock absorbers for the broader market. Shares in Woodside Energy climbed 2.8 percent, while Santos gained 0.9 percent due to the sudden surge in global energy costs.
Conversely, the mining sector dragged the index down. Heavyweights Rio Tinto and BHP slid 2.6 percent and 1.1 percent, respectively, on weaker copper prices. Gold miners faced sharper declines, with Northern Star falling 5 percent and Evolution Mining dropping 2.5 percent.
RBA Rate Hike Probabilities Surge
The market’s sluggish performance is heavily tied to the Reserve Bank of Australia board meeting scheduled for Tuesday, March 17. Financial markets are pricing in a 64 to 78 percent probability of a 25-basis-point interest rate hike to combat re-accelerating domestic inflation.
Current Australian inflation sits at 3.8 percent, exceeding the RBA target band of 2 to 3 percent. Over the weekend, Australian Treasurer Jim Chalmers warned citizens to prepare for an “inflation hike and increased cost-of-living pressure.”
Chalmers cited updated Treasury modeling predicting the fuel shock will drive inflation to peak in the “mid to high fours.” While he assured the public that models do not forecast a recession, the combination of soaring petrol prices and imminent mortgage rate hikes marks a stark reversal from late 2025, when the RBA delivered a series of rate cuts.