The current mixed market signals continued into this week’s selling at Australian wool auctions. Each individual centre appeared to operate independently of each other and became separate markets within a market. In the Merino sector, Melbourne prices were cheaper, Fremantle strengthened and Sydney was by and large, firm unchanged. Crossbreds in the eastern states were more consistent with 29 micron and finer fully firm to dearer, whilst the downward trend on the very small offering of 30 micron and broader continued.

The AWEX EMI (eastern market indicator) gradually decreased throughout the week by 6ac/clean kg per day to close 12ac lower at 1522ac clean kg. Most of these reductions centred from Melbourne. An indication of the willingness of demand was the USD EMI which went to the positive and rose 7usc/clean kg to 1135 usc/clean kg.

The lower volumes and wool types on offer continue to play their role, but a stronger dollar also came into play as many off shore participants were expecting a lower AUD to execute some buy orders. Subsequently these intentions were put off for the time being. The intent or hope was for either a more favourable foreign exchange rate or a cheaper physical market in Australia to lead to exporters lowering their levels for prompt or short term shipment offers, which reportedly did not occur to any great degree.

The selection of Merino types on offer continues to be plagued by abundant volumes of sale lots exhibiting high levels of VM (vegetable matter). These wools are often described with the suffix LB fault (about 1.1 % to 3%vm) or B fault (about 3.1% to 4.5%vm) or C fault (about 4.6 to 7%). The ruling levels for these types are currently around 80ac/clean kg lower for wools in the 20 to 22.5 micron area and as much as 150ac/clean kg lower for 18 micron types. In almost all instances though, these heavier vm wools are exceptionally good in their AM (additional measurement) tests and in particular the tensile strength (nkt). For those mills willing to take on and able to clear from the vm from the resultant wool top, these wools would represent good value given the relatively high top yields that should be being achieved.

For those Merino fleece lots on offer with the lower FNF (less than 1%vm) VM levels pricing was far more consistent and in steady strong demand.

Prompt business is still available for those holding stock or pre-pared to go short, but as volumes at Australian auctions are significantly lower for the next 3 or 4 weeks at least, exporters are highly reticent to commit to a short position. Stock and sell is still very much the course many buyers are taking which is in some way hindering the market's ability to stabilize as no mid to longer term positions are being set.

Next week has an offering of around 37,000 bales to be put up for sale. Volumes are diminishing, sales overseas are steady and at these levels growers are relatively willing sellers as indicated by the pass in rates of around 8%.

AUD Commentary - SAW

The Australian Dollar is almost back to where it started the week, and today, Friday is trading at .7415. That doesn’t tell the story however of quite a volatile week, with the AUD falling to a midweek low of .7388, before rallying hard to a high of .7466, on Thursday, then falling back to today’s level. While the Aussie fell against the USD it has actually strengthened against the cross-rates. The late rally this week in the USD surprised many as mid-week the USD and Equity markets took a hammering as President Trump seemed to be losing in his fight with growing allegations of Russian influence, and interference in FBI investigations, and the sacking of its director James Comey. The release of strong US economic data helped recover markets, as data showed US stocks are on track to post strong earnings growth of around 14%, the best result since 2011, and suggesting the rally to record highs in U.S Stocks is justified. This data also supports the U.S Fed’s view that there is likely to be two more rate rises this year. The consolidating of the Aussie around 74 cents is supported by the renewed strength in commodity prices, including Energy and Iron ore, as well as positive local data releases, including the Melbourne Institute, which said Consumer prices in Australia are predicted to have risen 4.0 percent on year, and yesterday markets were surprised as ABS data showed the unemployment Rate fell to 5.7% in April, easily beating forecasts for 5.9%.

Technical Analysis: The Australian Dollar held mostly above the .7400 level this week, putting in a bullish performance, and another small rally is expected, however any gains in the context of current positioning would be corrective with the overall trend bias still favouring the downside. Near-term overhead resistance is at 0.7455 still holds while first support now lies at .7360, then .7290. A break below that would see a challenge of the December 2016 low at 0.7160 .

Southern Aurora Wool forwards report

High prices again strangled forward demand. Low auction volumes did little to hold auction prices. Trading volumes were a little better this week as grower demand for both options and outrights found exporter support. Forward prices for the prompt June month remained steady with 19.0 trading at 1900 and 21.0 at 1480. New season prices were unchanged with exporters still pricing around 6 percent discount into the spring supply. Demand for options increased with growers preferring to take insurance over a trend reversal in price. Growers looked to take lower strike prices in order to keep premiums at reasonable levels (35 to 40 cents) in a highly volatile price series.

We expect similar landscape next week. Without a lift in near term demand we should see prices struggle to hold. Exporters will remain wary but reactive to grower enquiry at where they perceive fair value. Outright bidding levels are expected to be maintained around this weeks trade numbers with a slightly weaker tendency.