How may this depreciation influence the Australian economy?

A depreciation of the A$ can be caused by a wide variety of factors. But the main factor causing depreciation is low demand for Australian Goods and Services from overseas markets. This can result from several reasons. It could occur as a result of a world economic recession, this is that there a re generally low levels of production growth, employment growth, income and expenditure in overseas countries meaning that fewer people can afford to purchase Australian exports.

Domestic Inflation can also affect Australia’s exports if the inflation level is high, especially if it higher than our major overseas trading partners, Australia’s export prices will be increased and the competitiveness will be greatly reduced.

Domestic Inflation can also mean that domestic goods lose their competitiveness with imported Goods and S

When the A$ is depreciated, it becomes cheaper to overseas investors to buy and therefore should increase the level of capital inflow into Australia.

An increase in the demand for imports can also have an affect on depreciation of the A$. If domestic producers cant sufficiently satisfy the wants of the domestic market, Imports will increase and the A$ will depreciate.

Similarly, other currencies become dearer for Australian investors to buy and therefore should decrease the levels of capital outflow.

There are also negative effects of a depreciation of the A$. Because imports are now dearer, imported inflation can occur and can add cost pressures to the domestic inflation rate. Also a depreciation means that there is a decrease in the standard of living of Australians as income derived form total production (GDP) can purchase fewer imports and therefore fewer wants to be satisfied.

A major factor as to Australia’s recently poor current accou

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