Positive price results were achieved again at this weeks Australian wool auctions. Essentially it was the superfine Merino sector that lead the price escalation, but pleasingly, compelling gains were also made at the finer end of the crossbred segment. Purchasing activity saw the two most influential and largest operators strike the offering and top the buyers lists. Australia’s largest wool trader and China’s largest indent buyer were dominant in the sale rooms, and combined totals saw them acquire around 38% of the Merino fleece sold. By the close of selling the AWEX Eastern Market Indicator (EMI) settled at a new record of 1522ac clean/kg by registering the 22ac weekly gain. In USD terms, the EMI retracted by 4usc to 1144usc clean/kg on the back of a 2% weaker Australian dollar against the US dollar.

The hugely variable wool types and descriptions Australia now produces is obviously now a key factor in wool price determination. Everything from 14 to 24 can be found in commercial quantity in the Merino sector with extremely varying amounts of VM, staple strength ranging from 15 to 50nkt and length ranges of 55 to 120mm largely as a growing number of wool growers have chosen to change to 6 or 8 month shearing patterns. Many buyers now comment that they are finding it increasingly difficult to build full container loads of the same type within a sale week out of the same centre, making it too unpredictable to sell too far forward in fear of being unable to fulfil the contracted delivery point.

The Merino fleece market this week was divergent in direction dependent on micron, with the super fine/ fine types ( 20 micron and finer) on the improve and the fine /medium sector (broader than 20 micron) consolidating and showing some signs of a correction. The most sought after commodity this week were again the best superfine wools of 18 micron and finer. Any sale lots exhibiting the right specifications and quality for Europe and India were the receivers of substantial gains of anything upwards of 90ac clean/kg, with some individual lots well over 130ac dearer. The almost 2% advantage for those buying in Euro certainly aided their purchasing power.

The weaker FOREX in the AUD v USD largely masked the weakening in those Merino wool types broader than 20 micron. Whilst the better wools basically maintained their price levels, any sale lots slightly off ideal specifications were 20ac lower, as were the burry (more than 5% vegetable matter -VM) fleece lots, indicating top makers are becoming wary of producing tops in this quality zone considering the demand is stronger in the finer areas at present. As the price gaps continue to grow between microns though, the discount price will entice users back into the sector.

Merino skirtings reverted to the trend of only the finest and best lots being chased and up to 40ac dearer. The general market was subdued away from these types and small retractions of just 5 to 10ac were recorded. Cardings remain at record levels and local manufacturing interest dominated the purchasing. Crossbreds and comebacks continued their recovery and all types finer than 29 micron were generally 20 to 40ac clean/kg dearer. The finer come-back (25 to 27 micron) were the most sought and showed the largest gains of around 35 to 45ac clean/kg. In a very limited offering 30 microns and broader types appreciated by 20ac clean/kg

Approximately 44,000 bales is to be offered next week. A similar trend seen at the close this week could be expected, with a more selective approach to purchasing and consolidation around these levels. Tasmanian super fine sale next week in Melbourne.

AUD Commentary - SAW

After hitting a high on Wednesday of .7632, the Australian Dollar fell to an overnight low on Thursday of .7492, and now Friday, is trading at .7506. The AUD was pressured lower late in the week on a combination of slower (but respectable) growth numbers from China, a slide in some key commodity prices, most notably iron ore and oil, and a strong rebound in the USD ahead of Friday night’s U.S Employment report, and most importantly next week’s U.S Federal Reserve announcement on interest rates on March 15 . Overnight also the European Central Bank left its key rates unchanged with the main refinancing rate at 0%, while the deposit rate for funds parked at the ECB re-mains at minus 0.4%. The ECB’s monthly bond-buying program has eased to 60 billion euros. Ray Attrill, global co-head of FX strategy at the National Australia Bank said the USD rally was pressuring commodity prices lower, “It does appear that the typical negative correlation between the US dollar and commodity prices is reasserting,” says Attrill. “This in turn means that commodity-linked currencies are flipping from outperformers to underperformers now.” Technical Analysis - The Aussie’ sharp decline over the last two days supports the view that the corrective rally from .7158 was completed at .7740. The break of minor support at .7542 sees the Aussie likely to fall to the next support at .7450, then 7320. The Aussie still remains within its long-term down trend channel

Southern Aurora Wool forwards report

The physical market continued in a positive direction particularly on the fine merinos and crossbreds. This was reflected in the forward prices paid this week. Most activity occurred in the new season. Volume was split fairly evenly between the 19 and 21 micron contracts. The key 19.0 micron contract traded in August at 1720, October 1695, November 1685 and into 2018 January at 1675 and June 1650.

Volumes remain steady with over 100t traded (around 2% of the spot offering). With prices for most micron groups in uncharted territory exporters, growers and industry analysts are divided on the timing and depth of any retracement. This uncertainty is reflected in the trading levels as we see a fairly linear discounts out to the early new year where prices tend to flatten. This pattern is likely to continue as both buyer and seller look to find a balance between risk and certainty when searching for fair value.