Recently this has been reflected with a [xxxx] being the difference between exports and imports. Similarly, an increase in imports from overseas, which is characteristic of Australia's economy since we are a net capital importer [not correct- net capital importer refers to us taking in more foreign investment than providing investment overseas], would lead to a depreciation of the dollar. This is because imports would increase, making it harder for import-competing industries to compete and thus, pushing the price of the AUD down. This is best illustrated through the announcement that 55 000 jobs would be cut in the manufacturing industry and the production would cease by 2017 due to the unusually high value of the AUD of $0.90 against the USD.
[SD graph of the AUD showing an increase in supply].
Before examining the impact of changes to the net primary income component on the AUD, it is necessary to analyse changes to the financial account. This is because the net primary income account records returns on investment while the financial account records the principal, recently being a large surplus of $48 bn. Changes to the financial account significantly impact the value of the AUD as it reflects in confidence in the Australian economy. The financial account in a surplus because it mirrors the current account, which is in a deficit of $47.1 (approximately). If direct investment, for example, is high, this will lead to an appreciation of the dollar as investors will need to swap their currency for AUD in the forex market. This has occurred recently with a direct investment increasing to $47.7 bn due to the view that Australia is a "safe haven for investment". Weakening confidence on the other hand, would lead to a depreciation. This is because investors would move their money from Australia into neighbouring countries, an event deemed as capital flight This would increase supply and reduce demand for the AUD causing a sharp depreciation.
