A significant energy shock triggered by the ongoing US-Iran war has led to notable market and economic impacts, according to analysts from TD Securities and Brown Brothers Harriman (BBH) [1][2]. In Australia, the Melbourne Institute Inflation Gauge recorded a historic monthly increase of 1.3%, pushing headline inflation to 4.3% year-over-year and the trimmed mean to 4.4% year-over-year, both reaching their highest non-COVID levels since 2008 [1]. Despite this inflation surge, Australian household spending growth remains modest, rising only 0.3% month-over-month in both January and February, with annual growth at 4.6%. However, momentum in spending is slowing, and TD Securities warns that the risks are skewed to the downside in the coming months due to the sharp rise in oil prices following the US-Iran conflict [1].
On the global stage, BBH's Elias Haddad highlights that the energy shock from the Iran conflict is heightening financial stability risks and supporting the US Dollar (DXY) beyond what rate differentials would typically suggest [2]. Brent crude oil prices have rebounded but remain about 6% below the US$120 per barrel mark, while global stocks and bonds have stalled and the DXY is consolidating just above the top-end of its multi-month 96.00-100.00 range [2]. The situation remains tense as both the US and Iran rejected each other's ceasefire proposals, and President Donald Trump threatened further strikes on Iranian energy infrastructure if Iran did not comply with US demands by 8:00pm Eastern time on Tuesday [2].
BBH notes that a more persistent energy shock could trap central banks in restrictive policy settings despite unimpressive growth, increasing financial stability risks and putting government debt on a more fragile path [2]. The demand for US Dollar funding typically rises during periods of financial market stress due to the dollar's dominant role in global finance [2]. While BBH sees continued near-term strength for the USD, they maintain a cyclically neutral and structurally bearish outlook for the currency in the longer term [2].
Both sources emphasize that the energy shock is a key driver of current market dynamics, with inflationary pressures and financial stability risks at the forefront. The Australian economy faces downside risks to consumption, while the US Dollar benefits from safe-haven flows amid global uncertainty [1][2].
CONCLUSION
The energy shock resulting from the US-Iran conflict is fueling inflation in Australia and supporting the US Dollar, while also raising concerns about financial stability and slowing consumption. Both TD Securities and BBH highlight downside risks and market fragility in the near term. Investors should remain cautious as the situation evolves and central banks navigate restrictive policy amid unimpressive growth.