The Australian dollar is tipped to trade as high as US83 cents in 2018, and CommSec forecasts total returns on Australian shares to lift by 10-12% in 2018.
The Aussie dollar started the year near US72 cents and ended the year at US78 cents, trading between US71.60 cents and US81.24 cents throughout 2017.
CommSec economists had forecast a range between US67 cents and US79 cents over 2017.
“Over the past 40 years, the Aussie dollar has, on average, tracked in a US13.4 cent range,” CommSec Chief Economist Craig James says in an end of year note. “We expect a trading range in 2018 of US73-83 cents. Much will depend on whether US tax cuts prove stimulatory, leading the Federal Reserve to lift interest rates.”
Australia’s S&P/ASX 200 sharemarket rose by 7% in 2017, while the All Ordinaries lifted 7.8%.
Total returns on Australian shares (share prices plus dividends) grew by 12.5% in 2017, according to CommSec, after rising by 11.6% in 2016. Returns on government bonds rose by about 3.5%.
“Of the 22 sub-industry sectors, all but four lifted over 2017. The household and personal products sector was the best performer on the Australian market, up 45%, with capital goods up 43%. The worst performer was telecoms, down almost 27%, and retailing fell 13%,” James detailed.
The MidCap50 was the strongest size category, up 18%. The Small Ordinaries gained 16%.
Overseas, Hong Kong rose by around 35% and the Japanese sharemarket was up almost 20% for the year, while China was around 22% higher. The US Dow Jones was slightly more than 25% higher and the US S&P 500 index was up by more than 19%. In Europe, the UK FTSE gained nearly 7% with the German Dax up around 14%.
CommSec is forecasting consolidation of the recent gains during the first half of 2018 before the market resumes its push to reach the record highs set in November 2007.
“Both the Australian and global economies are expected to grow slightly above their longer-term average pace in 2018. The All Ordinaries is expected to end 2018 between 6,500-6,700 points. But as always the focus needs to be on total returns (includes dividends).”
CommSec forecasts total returns on shares to lift by 10-12% in 2018.
Commodity prices generally lifted over 2017 in response to stronger world economic growth. Base metals recorded annual gains around 25-30%. Wool lifted 30% and ended the year just off record highs. The Nymex oil price lifted to a 2½-year high of US$60.42 a barrel.
The spot gold price was trading around US$1,303.37 an ounce on December 30, to finish 2017 up 13%, its biggest one-year rise since 2010, according to Bloomberg data.
Reserve Bank of Australia cash rate
Over 2017, the cash rate averaged 1.50% - a record low.
“But despite the low level of rates, the Reserve Bank of Australia (RBA) is in no rush to change rates in any direction,” says CommSec.
“The Reserve Bank Governor [Philip Lowe] agrees with financial markets, believing that the next move in rates will most likely be up. But Governor Lowe adds that a move is still some way off. Inflation is well controlled and is only expected to edge modestly higher over the coming year,” says CommSec in its report.
CommSec expects the Australian economy to grow by 2.5-3.0% in 2018, slightly above the growth range for 2017.
Despite the economy approaching its sustainable ‘speed limit’, inflation is expected to drift higher towards 2.5% over 2018, but globalisation will continue to cap growth of prices, James says, adding that the nature of the housing market ‘landing’ and path of unemployment to the ‘full employment’ level near 5% are key issues for 2018.
Global economy and China
The International Monetary Fund tips global economic growth to lift from 3.6% in 2017 to 3.7% in 2018.
“The key issue is whether the low growth rates of prices and wages will continue, thus prompting central banks to remain on the monetary policy sidelines. Globalisation and technological change have been influential in keeping inflation low. In short, consumers can buy goods whenever they want and wherever they are,” says James.
“Investors will closely watch the path of the US economy in light of recent tax cuts as well as the intention of the Trump administration to pursue increased spending on infrastructure. China will remain in the spotlight as it attempts to define a sustainable course for the economy. Authorities want to achieve a higher standard of material wealth for the Chinese people while at the same time reducing pollution and congestion.”
The latest CoreLogic data shows annual growth for home prices in Australia was down to 4.2%, compared with 5.8% in 2016 and 9.2% in 2015.
CommBank economists are forecasting that the overall national trend towards monthly price falls will gradually lower annual price growth towards the zero level over the first half of 2018.
Things to consider: This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Any securities or prices used in the examples given are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. Past performance is not indicative of future performance. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 and a Participant of the ASX Group and Chi-X Australia.