The benchmark S&P/ASX200 fell 32.6 points by midday on Thursday to be down 0.35 per cent to 9,006.7, as the broader All Ordinaries lost 33.2 points, or 0.36 per cent, to 9,166.5.
The move followed a negative Wall Street session, after the US Federal Reserve surprised some analysts by keeping interest rates steady and concerns about the AI outlook and renewed Middle East conflict dragged on confidence.
"Following Iranian strikes on US military assets in Jordan, the US and Saudi Arabia launched strikes into Iraqi territory, with US President Donald Trump threatening that the US would be 'hitting Iran hard' in retaliation," Capital.com senior market analyst Kyle Rodda said.
"Crude prices surged as traders priced back in a risk premium amid ongoing supply disruptions and heightened probabilities that energy infrastructure or other regional energy choke points - namely, around the Red Sea - could be strangled."
Oil prices have rebounded roughly nine per cent Wednesday morning, with the Brent benchmark trading near $US87.50 a barrel, boosting local energy stocks.
Refinery operator Ampol led the segment with a 1.7 per cent boost, as it foreshadowed a 150 per cent lift in first-half underlying earnings to roughly $1.6 billion, underpinned by the disruptions to fuel supplies in the Strait of Hormuz.
Australia's technology sector also traded higher on the back of strong leads from WiseTech, Megaport and Life360.
The raw materials segment eased as Rio Tinto rallied for a second day after a solid first-half result. However, mega-cap miners BHP and Fortescue lost ground as iron ore futures wavered and copper improved.
Gold stocks were weaker despite an uptick in the metal's price to $US4,087 ($A5,871) an ounce.
Battery minerals also fell behind, except for PLS (formerly Pilbara Minerals) which gained 2.4 per cent after strong production boosted its June-quarter revenue by almost a third to $743 million.
The financial segment traded basically flat as decent gains from Westpac and NAB helped counterbalance weakness in insurers and Macquarie.
Consumer discretionary stocks and real estate trusts were some of the worst performers, as investors took profits on interest rate-sensitive sectors after three strong sessions this week.
In company news, Domino's Pizza shares rocketed almost 10 per cent higher despite the company flagging $259 million in write downs and an earnings loss for the 2026 financial year, as it targeted stronger cash flows for 2027.
Australia's banks continue to face a tougher time in the housing market, after NAB's business and private banking update revealed a 15 per cent slump in home lending applications to the bank over the June quarter.
The Australian dollar is buying 69.59 US cents, up from 69.53 US cents on Wednesday at 5pm.Â
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