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Reserve Bank wants AUD lower

Reserve Bank of Australia governor Glenn Stevens has announced he wants the Australian dollar to fall further to stimulate struggling sectors of the economy, stating that he would prefer to see a lower dollar rather than lower interest rates to spur economic activity.

Mr Stevens further announced that while he was uncertain where the AUD should ideally come to rest, he believed it would be ‘surprising if a nine at the front is the right number’, estimating that an AUD value of 85 U.S. cents would be closer to the mark than 95 U.S cents.

This is good news for struggling exporters such as Sims Metal Management (ASX: SGM), soft drink manufacturer Coca-Cola Amatil (ASX: CCL) and a whole raft of mining companies including BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO), who denominate earnings in Australian dollars.

On other fronts, a lower Aussie dollar is bad news for importers like McPherson Limited (ASX: MCP) and Nick Scali Limited (ASX: NCK), who import a majority of their products, and mixed news for companies such as Woolworths (ASX: WOW) and Wesfarmers (ASX: WES). Woolworths and Wesfarmers both have earnings in New Zealand which will be positively impacted by a lower AUD, however the cost of wares imported for their hardware businesses will rise.

A lower Australian dollar could also indirectly impact the earnings of businesses like Flight Centre (ASX: FLT), and travel insurers, as a weaker Australian dollar may reduce the appeal of overseas travel.

Foolish takeaway

As always with investing, whether an event is bad news or not depends on where you have your money. The Aussie dollar is still hovering around 90 U.S cents at the moment, although it may fall further if the U.S. tightens its fiscal stimulus (essentially stops devaluing their dollar). Investors shouldn’t panic as the AUD falls have occurred only relatively recently. However, as the AUD slide is also occurring at the end of a calendar year, now is a doubly prime time to start thinking about where you have your money.

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Motley Fool contributor Sean O’Neill owns shares in Rio Tinto.

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