Foreign exchange AUD marketForeign exchange market is a global decentralized marketplace for trading currencies. The market determines the foreign exchange rates and includes all aspects of buying, selling, and exchanging currencies at current or determined prices. This market comprises the currency exchange transactions between various market participants such as central banks, commercial banks, institutional investors, retail forex brokers, and individual traders. A rise in petrol prices leads to inflation in AustraliaInflation is the rate at which the general price level of goods and services in an economy increases over a certain period. Petrol is an essential commodity, and any increase in its price directly affects the prices of goods and services in an economy. Inflation reduces the purchasing power of an individual and can be a significant challenge for businesses. The rise in petrol prices leads to an increase in the cost of production, which is likely to push the prices of goods and services in the economy upwards. With inflation, there will be a shift in the demand and supply curve to the left, leading to a decrease in the quantity demanded and an increase in the quantity supplied, as shown in the diagram below. The equilibrium price and quantity will be higher at P1 and Q1, respectively. Reserve Bank of Australia (RBA) increases the interest rate by 0.25%The Reserve Bank of Australia (RBA) is the central bank of Australia and is responsible for the formulation and implementation of monetary policy in the country. The RBA can increase the interest rate to control inflation, encourage saving, or stimulate economic growth. An increase in interest rates leads to a decrease in the money supply, making it more expensive to borrow money. This is likely to lead to a decrease in consumption and investment and a decrease in aggregate demand in the economy. With the decrease in aggregate demand, there will be a shift in the demand and supply curve to the left, leading to a decrease in the equilibrium price and quantity, as shown in the diagram below: Therefore, we can say that the foreign exchange AUD market is impacted by both the rise in petrol prices and the increase in interest rates by the Reserve Bank of Australia.