Exchange Rates, Appreciation vs. Depreciation

[frog1944]

Hi,

When I look at the supply/demand curves for the Australian currency when it comes to an appreciation, I often see that the demand curve shifts to the right (that makes sense), though couldn't the supply curve also shift to the left to cause an appreciation of the Australian dollar (I've seen some resources depict it in both ways)? And vice versa for depreciation.

Thanks

[angelahchan]

Hi,

When I look at the supply/demand curves for the Australian currency when it comes to an appreciation, I often see that the demand curve shifts to the right (that makes sense), though couldn't the supply curve also shift to the left to cause an appreciation of the Australian dollar (I've seen some resources depict it in both ways)? And vice versa for depreciation.

Thanks

That's correct- both demand and supply can influence the value of $A. Demand involves the demand foreigners have for $A (how much foreign currency is being exchanged for $A), whereas supply involves how much Australians supply in the forex market in exchange for foreign currencies (Australian's demand for foreign currencies).  A supply curve shift to the left means Australians are supplying less $A in exchange for foreign currencies