Australia's goal of low inflation is to maintain the underlying inflation rate between 2-3% on average pa. over the course of the economic cycle. When Australian dollar appreciates it may benefit for businesses who import raw materials/equipments thus this helps to reduce their cost of production and hence helps to control cost inflation.
Well I guess to understand the Australian dollar you have to have an idea about the exchange rates. The demand for currency sets the value of each currency, this is known as the exchange rate. Exchange rates work on a ratio of one-to-one. the Australian dollar is a free floating currency where demand determines the value of the currency (unlike china they influence the amount of their Yuan in the exchange market known as 'dirty float')
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I think the answer is also lacking a second component (the demand side).
Essentially, when AUD depreciates, our purchasing power is eroded (because our dollar is worth less compared to other currencies). This means a) producers needing foreign imports (M) will have to pay more. To protect profit margins, cost inflation ensues. b) lower AUD means OTHER currencies have higher purchasing power. As this occurs, we may see DEMAND-side inflationary pressures where there is excess demand from overseas for our exports (X). Also, as AUD depreciates, we may buy less stuff from overseas (because it's more expensive) so that places more inflationary pressures on domestic producers, increasing cost inflation.
So, try to look at it from both a supply and demand-side point of view. Also, you don't need to explain (like coolrezaee has) the way exchange rate works unless the question specifically asks for how they operate. I wouldn't even explain the dirty float/market forces method of determining exchange rate even if the question was about exchange rate.
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