1. Relative Product Prices: If a country's goods are relatively cheap, foreigners will want to buy those goods. In order to buy those goods, they will need to buy the nation's currency.
2. Supply and Demand: The principles of supply and demand apply to the appreciation and depreciation of currency values. If a country injects new currency into its economy, it increases the money supply.
3.Inflation and Deflation: Inflation occurs when the general prices of goods and services that are causes of the value of the currency to depreciate, reducing purchasing power. Simultaneously, deflation acts reversely.
4. Monetary Policy: A country with easy monetary policy will be increasing the supply of their currency, which will cause the currency to depreciate. This country with restrictive monetary policy will be decreasing the supply and the currency should appreciate.
5. Economic Outlook: The negative impacts on major economic indicators like retail sales, GDP and a high/ rising unemployment rate can also depreciate currency value. If the economy is in a strong growth period, the currency value will appreciates.
6. Trade Deficits: When the trade deficit of a country increases, the value of the domestic currency depreciates. Simultaneously, when it decreases, the value of its domestic currency appreciates.