The S&P/ASX200 jumped 168.9 points by midday, up 1.96 per cent, to 8,802.1, as the broader All Ordinaries rose 168.4 points, or 1.91 per cent, to 9,005.1.
After an escalation of tit-for-tat attacks between the US and Iran, President Trump backed down on his latest round of threats and claimed the nations were on the verge of signing a peace deal.
Iranian authorities have denied reaching a final decision on the proposal.
"Nevertheless, the cancellation of fresh military strikes and another clear signal that President Trump has apparently very little appetite to escalate the war caused crude prices to drop and gave a fresh boost to risk assets," Capital.com senior market analyst Kyle Rodda said.
"Although in the bigger picture, the Strait of Hormuz remains closed and a risk to global energy markets."
The energy sector tumbled 1.5 per cent as oil prices fell to eight-week lows, weighing on Woodside, Santos and coal producers, while uranium stocks bounced from their recent sell-downs.
The reports had the opposite effect on airlines Qantas and Virgin Australia, which each rallied more than three per cent due to the prospect of easing jet fuel prices and fewer airspace disruptions.
Basic materials led the bourse higher, the sector bouncing 3.3 per cent in a broad-based rally.
Gold stocks surged as the precious metal firmed to $US4,185 ($A5,950) an ounce, boosting the All Ordinaries gold sub-index by more than four per cent.
Mega miners BHP, Rio Tinto and Fortescue all charged at least two per cent higher, as copper prices bounced but iron ore futures held onto their recent losses.
Mixed miners, battery minerals producers and rare earths plays also improved.
The heavyweight financials sector gained 1.7 per cent as ANZ led the big four banks higher with a 2.3 per cent boost to $34.62 a share, after announcing Ben Kelleher will replace its retiring NZ chief Antonia Watson.
Consumer cyclicals surged two per cent at the prospect of softening fuel prices, while staples carved a 0.6 per cent increase.
Real estate stocks gained 1.8 per cent, the sector now on-par with its value before the conflict began.
In company news, Magellan Financial Group gained more than five per cent after the competition watchdog rubber-stamped its merger with Barrenjoey, with shareholders to vote on renaming the combined entity Barrenjoey Group.
Cleanaway Waste Management added almost two per cent as chair Philippe Etienne confirmed he will retire from the board, to be replaced by Samantha Hogg from July 1.
The Australian dollar is buying 70.35 US cents, up from 70.02 US cents on Thursday at 5pm.
17°C