2) the impact on Australia's Balance of Payments by the decline in the TWI.
Ok so the TWI is declining, thus on a general whole, the Australian dollar is depreciating against it's trading partners. A depreciating Australian dollar will ensure that Australia will export more and import less. To explain, if a pair of Australian shoes are worth A$100 and say US$120 originally, but the Australian dollar depreciates, thus that same pair of shoes is worth less than $120 US. Therefore, Australia is more internationally competitive as it goods will be cheaper for overseas importers.
More exports, Less exports = Lower BOGS deficit on the CAD (affecting BOP)
Although on the other side, a depreciating Australian dollar will ensure that foreign net capital inflow will decrease. Theoretically , international investors MAY start to lose confidence in the Australian dollar (if this depreciation is rapid) and therefore the Australian dollar could collapse, crippling the economy. Therefore affecting the BOP.
Thinking deeper, a depcreciating Australian dollar could increase foreign net capital inflow. One as it is cheaper, the other because as a flow on effect the RBA has been known to use monetary policy to warden any rapid movements of the Australian dollar. Increasing interest rates to combat a falling Aussie dollar would increase Foreign investment as higher gains can be made on capital outlays. Therefore, loans from australians to these international investors must be made, worsening the Net Income component of the CAD, therefore affecting the BOP.
Go on the ABS website for BOP stats.
