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All Ords Report 05 July 2018

The Australian dollar (AUD) has been on the decline in 2018, and this week our currency traded to a low of around 73.1 cents. This may put a dampener on your plans to hop on an international flight to your favourite overseas destination, as it's now more expensive, but you may still benefit from a lower dollar.

The Australian dollar has fallen from a high of 81.4 cents in January 2018 to a low of 73.1 cents this month. This represents a decline of around 10 per cent. While your purchasing power for holidays and imports may have decreased, the stocks held in your portfolio or superfund may have benefited.

Rate rises in the US can drive the US dollar higher, which has a negative impact on the AUD. Also, as the difference between in the FEDís funds rate and the RBA's cash rate changes, demand for our currency by US/international investors falls, which means that the value of our dollar drops.

However, Australian companies that generate earnings overseas can benefit from a lower dollar. Revenue generated in US dollars can buy more Australian dollars when converted to the local currency come reporting season.

Companies that benefit from the change in the dollar include Macquarie Group Limited (MQG), Computershare (CPU) and mining stocks such as BHP Billiton Limited (BHP). MQG has risen by around 20 per cent this year, however, the dollarís movements are not the only factor supporting the rise.

Remember, even if a listed company operates overseas it doesn't automatically mean it will receive a direct benefit, as some companies may be hedged against currency fluctuations. Essentially this is a bet against adverse currency movements, but as with all predictions they may be wrong at times.

If you aspire to trade currencies, don't make the same mistakes that the majority of people do when they get started. The most important step to success is gaining a solid foundation by trading a slower moving market. So learn to trade equities for a few years first, as trying to take shortcuts typically leads to costly mistakes.

A retired executive of a large company that specialises in currency trading openly said he chooses to steer clear of this market because it is heavily stacked against individual traders. Doesn't this say it all?

What do we expect in the market?

The Australian market traded slightly lower this week, however, the move was minor and is a normal occurrence following a strong rise. This recently happened in June, and is required again for the market to continue to trade higher moving forwards.

From a fundamental perspective, the good news is that economists believe that our economy will continue to expand in the next few years, but a great deal of speculation remains even though our market is essentially bullish.

While I donít believe that our market is likely to trade through the current all-time high in the next couple of months, it's probable that we will see the All Ordinaries Index (XAO) achieve a new all-time high within the next six to twelve months.

Currently, the XAO is on track to achieve a short-term target of between 6,450/6,500 and 6,600 points, before it continues up to a new all-time high. Generally, the market may rise for three to five months from a low and as the prior low occurred in April 2018, it is possible for the market to continue to rise to a temporary peak in August/September.

Global markets

Perhaps you're tired of hearing about US trade talks? The surge in the oil price may be of interest, with NYMEX crude up over 7 per cent last week. Many Energy companies received a boost, including companies such as Oil Search Limited (OSH), BHP Billiton Limited (BHP) and St Barbara Limited (SBM). SBM has been a standout performer this calendar year, having risen 28 per cent.

Negotiations with the Organisation of Petroleum Exporting Countries (OPEC) producers has resulted in a commitment to boost oil production, however, the US State Department announced this week that companies must cut all oil imports from Iran, the third largest producer in the OPEC group.

Oil has traded to a high of $75.27 so far this week and may continue up into the next zone of resistance between $78 and $81 before it turns.

To Asia, and I mentioned in the previous report that the Hang Seng (HSI) would fall to between 27,600 and 28,700 points in the short-term. Currently, the HSI is trading at around 27,990 points. This decline, from the all-time high of 33,484 in January 2018, is similar to what I anticipated would occur on the DJI. It appeared likely that both markets would move together, however, a further decline on the DJI is yet to unfold.

Remember, we've been producing the share market reports on our YouTube channel, and this week's report is already published!

You can subscribe to be notified when we upload the weekly recordings!

So, welcome to the Wealth Within YouTube channel!

Dale Gillham is Chief Analyst at Wealth Within

All Ords Chart 05 July 2018

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