This week at Australian wool auction sales, the entire Merino offering came under heavy buying pressure forcing prices up once more. Despite all of the major trading currencies going severely against the AUD local price advantage, all buyers and exporters showed a willingness to participate fully in acquiring inventory. This strong buying activity forced prices up against the hampering forex influence, reinforcing the view of the increasing demand scenario emanating from all wool manufacturing destinations.

Predominantly on the back of the strength in the tuft Merino segment, the Eastern Market Indicator (EMI ) gained 13ac this week to close at 1331ac/clean kg. Perhaps more significant this week was the almost 3% rise in the EMI when expressed in USD. The US EMI moved 28usc/clean kg upwards to close at 1021usc/clean kg, the largest weekly rise witnessed for some time in that currency. With the CNY (Chinese Yuan) basically pegged to the US dollar, similar rises in Yuan were also recorded.

Within the Merino fleece sector it was the lower quality end of the offering that appreciated the most. For descriptions finer than 19 micron, the lower types gained 30 to 40ac/clean kg whilst the better types put on just 5 or so cents. This was expected as the suddenly and significantly stronger Euro impacted upon the strength of any European orders in the market. The micron price guides somewhat masked the strength of the rise this week at the super fine (finer than 18..5micron) end of the selection. The 19 to 23 micron types came under intense scrutiny once more as the price gap to the finer types has made those wools more attractively priced in comparison. All of these broader Merino types gained upwards of 20ac/clean kg by the close of selling, with the close being the strongest point of the week . Of particular interest this week was the reemergence of the largest Chinese indent buyer on the final day of selling after a few weeks of “slow operations.”

Merino skirting prices traced similarly to the fleece once more but in general achieved even stronger results. A general 25ac/clean kg was gained and some lower vm (vegetable matter) highest quality types were 40ac dearer for the wee as buyers struggled to find enough quantity to fill containers. Merino cardings were again very low in supply and continued the strong advance in price levels. Shorter lambs and pieces types for scouring were extremely well sought and sold at extreme levels, whilst carbonizing types also came under pressure gaining 15 to 20ac. Good colour locks and crutchings stayed in buyers sights and a further 15ac was extracted from the market.

The crossbred offering (26 to 30 micron) trended cheaper throughout selling this week as that sector is more reactive to immediate currency movements. Additionally, it is known that stocks are still being held of mainly 30 micron and broader in some Chinese factories. Other crossbred wool growing nations are holding out for better prices and thus are building greasy stocks, albeit small in volume. All these factors are obviously negatively influencing price levels in the broader microns for the moment.

It is widely being anticipated of a consolidation in the market next week as exporters and indent buyers reassess the values within each individual market segment. Of most interest is the talk of more up-side being apparent on types broader than 19 micron. Recent history shows a larger than normal price differential compared to the finer types. The finer end of the market is expected to remain strong as the European and Indian interest is ongoing.

The expected larger quantities delayed by the wet weather are now hitting the market and around 45,000 bales will be offered each week for the next fortnight. This extra quantity will give purchasers a chance to be more selective when trying to complete their outstanding commitments which will apply less upward price pressure on the market. A firm market is expected for the Merino sector, with cross-breds of 26 to 30 micron again very much influenced by the currency movements.

Southern Aurora Wool Forwards Weekly Report

Overall sentiment was stronger to start the wee with pre Christmas bidding at cash on most micron qualities. The AUD strength and risk estimation limited the interest in the New Year pricing prior to the start of the auction series. Limited supply coming through this week help maintain the interest in the front months with 21.0 micron trading at and above cash. November traded from 1410 to 1420 and December 1400. The forward curve has flattened through December and into the autumn delivering growers forward pricing opportunities at historically high levels. Some interest has come forward this week from growers looking to buy put options from December through to July 2017.

Weekly Financials and AUD Commentary—Source SAW

Its been a volatile 48 hours for the Australian Dollar. On Thursday morning the AUD sprinted to 7-month high of .7734 moments before the release of Australia’s negative employment report. The AUD dropped 40 points in seconds, and today Friday is 1.42% lower trading at .7624, more than 100 points lower than yesterdays high. The AUD has failed to break and hold above .7700 on eight separate occasions since mid-August.

Overnight a few key commodities helped drag the AUD lower, including some base metals and Crude Oil prices, however Iron Ore is holding well. Despite the ugly percentage decline, the reality is that the fall on Thursday has only taken the AUD/USD bac to where it was trading on Tuesday, such has been the strength of the Aussie’s rally. In fact during the week the Aussie hit a fresh four-year high. Firmer commodity prices have been enough to offset renewed US dollar strength, keeping the AUD comfortably within this range. The question is where to from here ?

Technically the Aussie hit a wall of resistance just above the 0.77 level again, and should correct lower to temporary support at 0.7560 . For the moment the AUD remains in a broad trading range waiting for new direction.