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Reserve Bank says Australian dollar is too high

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.

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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.

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