Several factors within a nation can have a significant effect on the currency exchange rates and the relative importance of each is the subject of debate; however, it is importantto be aware of some of the key fundamentals. Australia's raw and agricultural goods - as well as strengthening ties with China - are likely considerations when reviewing the value of the dollar.
Inflation: It is generally believed that countries with consistently lower inflation exhibit a rising currency value while countries with higher inflation may see currency depreciation. Interest Rates: High interest rates may attract foreign investors and that can lead to an exchange rate increase while the opposite scenario is possible in a country with low interest rates.
Overall Economic Conditions: Everything from a country's balance of trade to the size of their deficit or surplus can serve as a barometer of the condition of the country and the likelihood of default. Investors look for countries with stronger economic foundations; and the better the economic foundation of one country versus another may increase the value of the country's currency. Sovereign credit ratings from places like Moody's or S&P can impact the perception of a nation's growth and stability.
Perception: The so called "flight to quality" exists within foreign currencies as investors will often seek what they perceive as "safe haven" currencies during times of political or economical instability.
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