Final answer:
The demand and supply of the Australian Dollar (AUD) are influenced by domestic interest rates, the performance of the stock market, and external factors such as international trade and geopolitical events. Additionally, the supply of AUD can be affected by changes in export income, monetary policy, and production costs due to factors like natural disasters or technological advancements.
Step-by-step explanation:
The demand and supply of the Australian Dollar (AUD) are influenced by various factors at both the domestic level and globally. Some key factors include:
- Domestic interest rates: Higher interest rates in Australia can increase the demand for AUD as investors seek higher returns on investments denominated in AUD. Conversely, lower interest rates may decrease its demand.
- The stock market: A strong Australian stock market can attract foreign investment, increasing demand for AUD. Conversely, if the stock market is performing poorly, it can lead to a decrease in demand for AUD.
- External Factors: Events such as international trade agreements, geopolitical stability, and the economic performance of trading partners also greatly affect the demand for AUD.
In terms of supply, changes in elements like export income, which impacts the flow of AUD in foreign exchange markets, and the Reserve Bank of Australia’s monetary policy actions, which can affect the amount of AUD in circulation, play crucial roles.
Additionally, factors that can cause a shift in the demand curve for goods and services, in general, can translate to parallel shifts in currency markets. These include changes in consumer incomes, the prices of related goods, consumer tastes, and expectations about future prices and incomes.
Summing up, factors affecting the production cost, such as changes in the cost of inputs, can affect the supply. A natural disaster, for example, may disrupt production, reducing the supply and hence potentially raising the cost of local goods, influencing the currency value.