Australian wool markets moved clearly back to the positive this week as auction prices were sensationally dearer. Within the Merino sector gains of well over 100ac clean kg were recorded as buyers hit the market strongly to cover off new and existing open positions. Crossbreds were well sought with just the carding segment losing out in an incredibly strong week, building on top of the already historically high price levels.

The AWEX Eastern Market Indicator (EMI) climbed daily and concluded the selling week at 1512ac/clean kg, a gain of 53ac/clean kg for the week. With a weaker AUD v USD forex rate the move upwards was less intensive when the EMI is measured in USD but a still imposing 3% rise to 1134usc/clean kg was achieved in a stellar selling week.

The continuation of the wool market's stunning reversal of fortune after 2 weeks of rapidly diminishing levels was largely expected, but 3 or 4 buyers took the market to sensational daily gains this week. Recent history shows that moves of this scale are not always sustainable, particularly in a growing supply year, however wool growers were happy nonetheless, reflected in the reduced passed in rates of just over 5%.

The erratic movements of the past 2 weeks indicate two major influences as to the way the wool market trading has developed since the supremacy of Chinese buying.

For one, it is clear that the local buyers and exporters have their fingers on the pulse of the sentiment of their major clients. The close relationships between overseas buyers and local operators transfers that demand (or lack of) immediately into the sale rooms.

The second point is that the hand to mouth method of purchase from the Chinese is way and above the preferred means of purchase. This is evident from both sides, with local exporters exposing themselves to less risk by selling promptly and the manufacturers avoiding the pitfalls of buying too far into the future. This is risk adverse behaviour towards both the fluctuations in the price of wool and any exposure to shifting foreign exchange rates.

So the Merino sector experienced heavy prices rises this week. The superfine and ultra fine sectors (wools finer than 18.6micron) gained a 45 to 60ac/clean kg but it was the 19 to 21.8 micron area that was extreme with a 100 to 130ac/clean kg advance in price levels recorded, with the highest weekly price at the close of selling.

Early in the week it was local traders dominating, but the largest rises occurred when the major Chinese indent buyer joined in through the final day, but those locals had an average up their sleeve and were mainly able to out buy them. As this happened though most other buyers chose to completely avoid getting caught up in that type of aggression and left the action to just those 3 or 4 buyers.

Next week Australian auction sales will be in recess. Following the weeks break, 50,000 bales is scheduled to be on offer in the week commencing 24th April.

AUD Commentary - SAW

Its mostly been one way traffic for the Aussie Dollar lately, closing a little lower for 8 days, falling from .7616, to a low overnight of .7478, where it has neatly bounced off, for the last three days, and is the almost the identical low of the last three weeks.

Today, Friday (today) the AUD is trading at .7540, rallying after an interview released overnight by The Wall Street Journal, with President Trump where he said that the USD “is getting too strong, and partially that’s my fault because people have confidence in me”, adding “it’s very, very hard to compete when you have a strong dollar and other countries are devaluing their currency.” He also backtracked on his pre-election promise to label China a currency manipulator, and also left open the possibility that current US Federal Reserve chair Janet Yellen could have her term extended beyond next year. “I do like a low-interest rate policy, I must be honest with you,” Trump said when asked about Yellen.

It wasn’t manipulation, but certainly jawboning, resulting in the US dollar index falling more than 0.5%. That helped to propel the Aussie dollar higher despite some large losses across base and bulk metals prices overnight along with persistent geopolitical concerns surrounding Syria and North Korea. Iron ore, Australia’s largest goods export by dollar value, slumped by over 8.5% over the last week, yet the Aussie is still holding. Today, three events could move the AUD, the first being the release of our Unemployment report, and the release of the RBA’s Semi-Annual Financial Stability Review and the China’s international trade report for March.

Technical Analysis - The AUD’s decline over the last 8 days is affirming the case of near term reversal. The rise from the low earlier this year at .7158 is completed at 0.7748 already. Focus will remain at the key support zone at .7478. A firm break of this level will target next support at .7360, and then the .7158 low.

Southern Aurora Wool forwards report

The rebound in the auction market was expected by most participants but the magnitude caught most by surprise. Early trading on the forwards, particularly in the medium wools indicated a strong market with 21.0 microns trading at a 20/30 cent premium to cash. The resultant rise over the two auction days saw the 21.0 index near the top of it’s 12 month trading band (1321 to 1509) and push towards the 2011 top of 1526.

The spot activity has seen renewed interest from buyers into the spring. Levels have lifted but buyers are hesitant to bid over the 95 percentile six to nine months out.

As a point of reference the 95 percentile are 18.0 2050, 19.0 1645 and 21.0 at 1400. The current spot has the market respectively 105/260/107 above this levels. The though to ponder on as we all enjoy our Easter Recess -

It is often assumed that buyers are always trying to get it right when in truth they are using risk management and forward prices to enhance and protect margins and increase profitability. This should be the goal of all. The value of certainty is more important than a fear of lost opportunity.