The S&P/ASX 200 fell 1.3% to around 8,630 in early Thursday trade, snapping a two-session advance, as climbing oil prices reignited inflation fears and strengthened expectations of an interest rate hike by the Reserve Bank of Australia next week. The ongoing conflict in the Middle East, with no clear resolution in sight, pushed crude prices back above $90 a barrel despite a coordinated release of strategic oil reserves by major economies.
The renewed surge in energy costs increased pressure on the RBA to tighten policy as early as next week, with policymakers warning that higher fuel prices could drive inflation above the central bank’s target range. Money markets now imply about a 75% probability of a rate increase next week, up from less than 30% earlier this week, and are pricing in roughly 60 basis points of additional tightening over the remainder of the year.
Equity losses were broad-based, with banks, miners, gold producers, and technology stocks all retreating. Heavyweights Commonwealth Bank, BHP, Newmont, and Wisetech were down between 1% and 4%. In contrast, energy stocks outperformed, led by Santos, which gained about 1.5%.