MENU

RBA’s Christmas present from Helicopter Ben

RBA Governor Glenn Stevens has received an early Christmas present, courtesy of the US Federal Reserve.

After months of trying to talk the Australian dollar down, Mr Stevens will be delighted that the currency fell overnight to 88.6 US cents, a three-year low, on the back of the tapering announcement from US Fed chairman Ben ‘Helicopter’ Bernanke.

Mr Bernanke announced that quantitative easing will be tapered back by US$10 billion to US$75 billion per month, as signs emerge that the US economy is recovering and unemployment falling.

Speaking at a parliamentary committee meeting earlier this week, Mr Stevens said he had considered wading into the market to push the Australian dollar down, more than once. He had described the exchange rate as ‘uncomfortably high’, when it was over 90 US cents, and wants the exchange rate to come down, to assist the non-mining sectors of the economy. As the mining boom tapers away, Mr Stevens is keen to see other sectors of the economy take over the driving.

Mr Stevens recently suggested the Australian dollar should trade at around US 85 cents, which in itself caused the currency to fall. At 85 US cents, including our giant miners BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) will be reaping an iron ore price above A$150 a tonne. As they increase production and export volumes, it should provide a boost to Australia’s economy, with iron ore our most valuable export.

Other exporters will also benefit from the lower Australian dollar, as will companies with offshore operations, including packaging company Amcor (ASX: AMC) and CHEP pallets group Brambles (ASX: BXB).

Foolish takeaway

As the US economy stages a recovery, the US dollar should strengthen and further weaken the Australian dollar, and we could see the exchange rate below 85 US cents in the not too distant future.

Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.