FACTORS AFFECTING SUPPLY AND DEMAND OF AUSTRALIAN DOLLARS

With a floating exchange rate, such as Australia's, supply and demand factors largely determine the dollar's equilibrium price. The exchange rate is sensitive to changes in both demand and supply, which can cause changes in the equilibrium exchange rate. Another factor, which can affect the supply and demand of Australian dollars, is intervention in the market by the Reserve Bank of Australia. DEMAND The demand for Australia's currency in the foreign exchange market (Forex) is …

…inflation rate is higher and its firms are relatively uncompetitive, then imports will be cheaper than products produced in Australia and demand for imports will rise. Also, tastes and preferences of Australian consumers change over time, and an increase in the desirability of goods and services produced overseas will increase supply of AUD on the foreign exchange market. When supply of the dollar increases, there is generally a depreciation of the value of the currency.