Mobility Capital seeks the highest risk- adjusted expected return. The investments available in each currency can be viewed as a portfolio. Designating one as domestic (d) and one as foreign (f), in a world of perfect capital mobility the exchange rate (expressed as domestic currency per foreign currency unit) will be driven to the point at which the expected percentage change in the exchange rate equals the “excess” risk- adjusted expected return on the domestic portfolio over the foreign portfolio.
Any excess risk-adjusted expected return on a foreign investment (“excess” meaning above the risk-adjusted return on a domestic investment) will be exactly wiped out by the change in the currency exchange rate. As an AUD investor, you’ll get the same return (in AUD) whether you invest in AUD-denominated securities, or BRL-denominated securities, or ZAR-denominated securities, or whatever.