Inflation in Australia fell by 0.1% in February to 3.7% y/y, surprising markets that had expected no change. However, the details of the report were already outdated, since they were gathered before the attack on Iran and the subsequent turmoil.

Recent data suggest that the March figure may turn out higher than previously expected. According to the Australian Institute of Petroleum, prices for unleaded gasoline reached 2.38 Australian dollars per liter for the week ending March 22, and averaged 2.19 Australian dollars per liter for March, which is about 28% higher than the February average. At present, average gasoline prices for the first quarter are less than 5% higher than the fourth-quarter average, which is not yet a cause for concern—provided that military actions, as Trump promises, end by April 9.

It should be taken into account that the end of the war now depends more on Iran than on the United States. Iran may continue to block the Strait of Hormuz and strike infrastructure in the region if it considers the proposed terms for ending the war unacceptable. At the same time, U.S. capabilities are limited, and the stated objectives have not been achieved and are unlikely to be achieved.

If the conflict does not end soon, inflation in Australia is expected to rise to 5% year-on-year. At present, markets are pricing in two interest rate hikes by the Reserve Bank of Australia this year, which is a bullish factor for the Aussie. The outlook for the Federal Reserve's rate has also changed, but the U.S. has far more domestic problems, and if the war factor fades, the dollar may not be able to sustain a bullish trend.

The net long position in AUD increased by 1.05 billion over the reporting week to 4.9 billion, while the estimated price declined slightly under the influence of short-term factors.

A week earlier, we suggested that AUD/USD would not fall significantly under the pressure of panic sentiment and would remain within a wide range of 0.6945 to 0.7190. Indeed, under pressure from panic selling, the Aussie attempted to move below the lower boundary but quickly returned and currently lacks direction. The scenario for further movement is unpredictable and will directly depend on whether Trump's statements about the start of negotiations are confirmed—at least Iran denies what Trump has said. If tensions ease, we expect a wave of euphoria and a rise of the Aussie toward the upper boundary of 0.7190, as domestic factors favor AUD strengthening. If there is no confirmation, another attempt to break below the 0.6945 level is almost inevitable, with a possible target of 0.6810/20.