Australia is simply following normal economics, rather than the "neo-John Law additional debt solves all problems" currently being followed in the US and much of Europe. But they are sailing in turbulent seas created by the prop-wash of irresponsible policy by the Federal Reserve and other central banks carrying out similar policies under the Fed's urging.
Australia faces the same problem faced by France in 1931. Australia is trying to run a free market economy in a world distorted by monetarist perversions. In 1931 America and the UK decided to destroy the value of their currencies in a desperate attempt to "increase aggregate demand", a concept Ben Bernanke and Greenspan would agree with today but is essentially a false concept.
When this took place, the value of the French Franc rose dramatically just as the Australian Dollar is doing today. This has made imports more affordable which Australians have seen as a short-term opportunity to grab, especially imported electronics, before the window of opportunity closes. A large portion of the Australia's existing current account deficit will be short-lived.
France dealt with this problem by emphasizing the export of luxury goods like wine and linen whose demand actually increases, or at least declines minimally, as prices rise or import duties are applied - an effect known as Giffen Goods. This period greatly elevated the status of French luxury goods to the level we are familiar with today. Australia produces minerals, metals, food and oil in great demand.
On the import side, France disconnected from international trade with import duties, as did most other nations. Australia removed 100% import duties on imported cars only a few years ago. This sort of market protection is familiar and accepted in Australia to protect Australian jobs. I have no doubt they will reinstate this form of protection to avoid being sucked down the drain if international balances worsen. Though in the short-term, rate hikes and "Buy Australian" talk will stem the worst of the problems.
I believe this will entail a change in Prime Ministers as the current PM John Howard, unlike the Australian Reserve Bank, has shown himself to be a Bush lapdog who will find it difficult to display the independence required for this move.
I should also mention that one part of the Australian current account deficit is the savings from Australian Superannuation retirement accounts being invested overseas in infrastructure like sewerage facilities in major cities, which is hardly a problem.
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