Reserve Bank says Australian dollar is too high

Credit : Will

This week the Reserve Bank of Australia’s governor Glenn Stevens left the nation’s cash rate on hold at 2% stating that the economy was ticking along reasonably thanks to low interest rates supporting demand.

The governor also noted regulatory measures constricting home loan lending were moderating growth in the residential housing markets, while overall GDP growth accelerated over 2015 despite the mining slowdown.

All else being equal the governor’s message is that with inflation and growth reasonable there’s little chance of another interest rate cut because the economy is adjusting nicely to the mining downturn via a services boom fuelled by the low Australian dollar.

However, as the governor acknowledged: “The Australian dollar has appreciated somewhat recently….Under present circumstances, an appreciating exchange rate could complicate the adjustment under way in the economy.”

In other words an Australian dollar heading back near or above US80 cents over a reasonable period of more than a month or so is the most likely trigger to force the RBA to cut rates again and fire up the the value of high-yield dividend shares.

In particular those high yielders with exposure to a weaker Australian dollar, or genuine blue-chip status are likely to attract cash rich SMSF investors and other yield-hungry investors.

Such as?

Amcor Limited (ASX: AMC) this global packaging giant is once again heading towards a record share price high with the company paying dividends in US cents prior to being exchanged into Australian dollars. It currently sells for $14.64 yields around 4% and local investors will benefit from the falling Australian dollar.

Telstra Corporation Ltd (ASX: TLS) shares are likely to benefit from an interest rate cut in Australia as SMSF investors seek out high-yielding shares in businesses that are considered to be relatively defensive. The stock currently sells for just $5.19 and yields 6%.

Macquarie Group Ltd (ASX: MQG) is heavily leveraged to a falling Australian dollar and its diversified financial services businesses are likely to benefit from a stronger US economy. Macquarie offers a yield in the region of 5.5% when selling for $62.78 and shares look attractive.

Iress Ltd (ASX: IRE) is a financial technology business with leverage to the volatile UK pound among other global currencies. Shares are slightly on the expensive side at current valuations of $11.44, although this business remains the ASX’s best financial technology company in my opinion. It has a powerful presence in the giant UK financial services industry and yields around 4% based on analysts’ estimates for the total dividend pay out over FY2016.

More superb dividend picks....

Could these just released franked dividend picks turn $15,000 into over $30,000?

When renowned dividend investing pros like Andrew Page issue buy alerts, it pays to listen. Because investors who followed Andrew's recommendation of Australian Pharmaceuticals in early 2015 could've doubled their money in just over a year, turning $15,000 into over $30,000 by the time he recommended they sell and lock in their profits. Chances are you won't want to miss uncovering the names of Andrew's newest share recommendation and short list of 3 dividend Best Buys Now Shares.
So click here to learn more about these potentially life-changing shares.

Motley Fool contributor Tom Richardson owns shares of Macquarie Group Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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.