ation to another shifts accordingly. Supply and demand for any given currency, and thus its value, is not influenced by any single element, but rather by several. Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a governments' central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).Government budget deficits or surpluses The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency. Balance of trade levels and trends The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in the trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency. Inflation levels and trends Typically, a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency. Economic growth and health Reports such as gross domestic product (GDP), employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be. Another factor affecting the exchange rate between the US Dollar and other currencies is the merchandise trade balance. By definition, the merchandise trade balance is the net difference between the value of merchandise being exported and imported into a particular country. For example, consider the exchange rate for Australia dollar and US dollar. Australia...
