So in terms of the effect on the Australian dollar, of the three major changes in capital flows we have seen over the past six years, two of them: the capital inflow to the resource sector to fund investment along with the increased purchases of government debt, have been putting upward pressure on the currency.
But at the same time, the reduction in offshore borrowing by the banking system has been putting downward pressure on it. The net effect of all these flows however, is that the Australian dollar is higher than one would expect, given fundamentals such as the terms of trade and interest differentials.