Quarterly Economic Update: April to July 2026

The quarter opened with hopes of peace in the Middle East and closed with the conflict reignited. Combined with a Reserve Bank on hold, a Federal Budget that rewrote the tax rules for property investors, and sharp swings in gold and currency markets, it made for an eventful four months for households and investors alike.

Middle East: Ceasefire Unravels, Oil Rebounds

After more than three months of conflict, the US and Iran agreed on 14 June to end the fighting and reopen the Strait of Hormuz, which normally carries about one-fifth of the world’s oil. A memorandum of understanding was signed in Geneva on 19 June. Oil prices, which had already been easing as hopes of a deal grew, fell further: Brent crude dropped from its March peak of US$126 a barrel to around US$72 by early July as shipping resumed.

The relief was short-lived. In mid-July, Iran fired on commercial shipping in the Strait and declared it closed; the US responded with fresh strikes on Iranian military and naval targets, and Iran’s Foreign Ministry declared the ceasefire void, stating it was in “an existential war” with the US. Fighting continued through the second half of the month, with shipping traffic through the Strait falling sharply. Oil prices reversed accordingly, with Brent crude climbing from the low US$70s to above US$97 a barrel by 24 July before easing to close the month near US$88, a monthly rise of over 20%.

Petrol Prices and the Fuel Excise Wind-Back

Australian households have been partly shielded by temporary fuel excise relief, which halved the excise rate from 52.6 to 20.6 cents a litre between 1 April and 30 June in response to the earlier oil shock. From 1 July, the Government extended assistance at a reduced level, setting the rate at 36.6 cents a litre until the relief is due to end on 2 August. With crude prices back near US$90 a barrel and that relief winding back, bowser prices are likely to rise further into August.

Interest Rates and Inflation

The RBA raised the cash rate to 4.35% in May, the third rise in a row, then held in June to assess the effect of the earlier increases and the initial oil shock. There was no RBA board meeting in July; the next decision is due on 11 August. ABS figures released late in the month showed annual inflation easing to 3.8% in the year to June, from 4.0% in May, with trimmed mean inflation steady at 3.6%. Housing remained the largest contributor, with electricity prices up 22.4% over the year as government rebates expired. The combination of softer headline inflation and a fresh oil-driven cost shock leaves the Board with a genuine balancing act ahead of its August meeting.

US Rates: The Fed Holds, but It Was Close

The Federal Reserve, under new chair Kevin Warsh, held its target range at 3.50% to 3.75% at its 29 July meeting, with three of twelve members dissenting in favour of a rise. Warsh reiterated that the Fed would “deliver price stability” and would not hesitate to act. Markets are now pricing one to two further US rate rises by year end as higher energy costs feed through to inflation expectations.

Property Investors: Tax Changes Now Law

The Treasury Laws Amendment (Tax Reform No.1) Bill 2026, containing the Budget’s negative gearing and Capital Gains Tax changes, passed the Senate on 25 June and is now law. From 1 July 2027, negative gearing will no longer be available against salary or other personal income for established residential properties purchased after 7.30pm on 12 May 2026 (Budget night); losses on these properties can still be offset against rental income and carried forward to future years. Properties owned, or under contract, before that time retain existing treatment until sold. The 50% CGT discount is being replaced by inflation indexation and a minimum 30% tax rate on gains made after 1 July 2027, a change that also extends to assets purchased before 1985. The family home is unaffected and gains on it remain tax-free.

New builds retain both negative gearing and the existing CGT discount, sharpening the relative appeal of new housing stock as an investment. Owners who retain their pre-Budget entitlements until sale may also be inclined to hold longer, which would tighten the supply of established investment properties coming to market. If you own an investment property or are considering one, it is worth revisiting your strategy in light of the change.

Gold Retreats Further, Then Rebounds

Gold’s decline extended through July, falling from a January peak near US$5,595 an ounce to around US$4,010 by 20 July. It then recovered to above US$4,100 by 31 July as reports of a pause in US airstrikes revived some safe-haven demand. Gold remains well down from its highs, though Goldman Sachs and JPMorgan still see it materially higher by year end, with targets of US$4,900 and US$4,500 respectively.

Currency and Markets

The Australian dollar, which had fallen below 70 US cents in June, spent most of July in a narrow band before firming to close the month at 70.18 US cents, up around 1.8% for the month despite ongoing uncertainty over the US rate path. The ASX 200 pushed higher again in July, closing near 8,977 points, up around 2.9% for the month and its fourth consecutive monthly gain.

Looking Ahead

The renewed conflict has reopened a question that seemed settled in June: whether an oil shock derails the fall in inflation, and how central banks respond. The RBA’s 11 August decision will be the first real test, complicated by resilient services inflation alongside a softer headline number. The Fed faces a similar balancing act, and the scheduled end of fuel excise relief in early August adds a further domestic cost-of-living pressure point.

Taken together, the quarter’s developments touch most parts of a portfolio at once. Volatility across oil, gold and currency markets is a reminder that diversification across asset classes, not just across individual holdings, remains the more reliable buffer against any single geopolitical event. The property tax changes add a further layer for investors to weigh: the timing of any established property purchase now carries materially different tax treatment either side of 12 May 2026, and the shift toward inflation indexation and a minimum 30% tax on future capital gains changes the arithmetic on holding periods and ownership structures for both new and existing investments. None of this alters the basic case for a long-term, quality-focused approach, but it does make this a reasonable point to review asset allocation, ownership structures and contribution strategies against the current settings, rather than the ones in place even a few months ago.