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The Iran war has dragged on for longer than markets had anticipated in the spring, which is creating a challenging backdrop for emerging market currencies.

Markets are finally beginning to take notice of the renewed US-Iran hostilities and surge in oil prices, which last week jumped back above $100 a barrel.

After raising rates in June, the Governing Council will likely stand pat at its July meeting, though renewed US-Iran tensions have raised the risk of another rate hike in September.

The collapse of the ceasefire between Iran and the US, and the escalating military conflict in the Middle East, has so far failed to shake markets from their summer torpor and currencies are no exception.

The Australian dollar performed relatively well this week, driven largely by weaker than expected US inflation data which saw it rally in the early part of the week.

The latest flare up in tensions between the US and Iran failed to trigger any significant safe haven flows in currency markets, or in any financial markets for that matter.

The half time whistle has sounded on 2026, drawing to a close an eventful first six months of the year that will predominantly be remembered for the elevated geopolitical risk premium associated with the Iran war.

The dollar rally that has lasted since early May seems to be petering out.

A pull back in risk sentiment saw stocks markets drop globally last week, led by the big winners of the last few years, technology companies.