Positive movements across all type categories featured at Australian wool auction markets. The AWEX EMI (eastern market indicator) increased 28ac/clean kg or 1.9% for the week to break through the 1500c barrier once again and closed at 1506ac/clean kg. This level is almost 18% higher or 227ac more, year on year. The EMI when measured in USD outstripped the AUD gains this week and rose 2.8% or 31usc to 1147usc/clean kg. At this level we are 200usc higher than 12 months prior and that is well over 20% higher in USD terms which is significant given the world largely buys wool in this currency.

Large gains in the fine/medium (19 to 22 micron) Merino fleece sector were the highlight of the selling week. In this area, the individual indicators gained 45 to 65 ac/clean kg, but masked within these figures were gains of well over 100ac/clean kg. Of most interest to buyers were sale lots between 19 and 22.5 micron and 2 to 6% vm (vegetable matter). With the vastly reduced offered volumes typical of this time of year, it took just 2 or 3 buyers to act aggressively and prices soared radically and landed these types in price territory completely in contradiction to the levels at which these types were sold or can currently be sold on.

Good gains were also recorded within the super fine (finer than 18.5 micron) Merino fleece descriptions. Although bidding was nowhere near as aggressive, competition was far more wide-spread with many buyers actively purchasing, but in a far more measured manner. The better types destined for Europe were upwards of 45ac dearer whilst the lesser categories moved a solid 15 to 30ac clean kg higher. The average and inferior types also stabilised, found a level, and by week's end were showing signs of a slight bounce upwards.

The Merino skirting results were basically split into two markets. Those sale lots with less than 6% vm were chased hard and gained around 25ac whilst heavier vm lots did reasonably well and maintained their values for the week. Interesting to note though is that those pieces and broken lines with jowls and heavier cott left in are receiving heavier and heavier discounts from most buyers. With values well over 1400 dollars per bale for good pieces, it is a timely reminder to class those skirting lines well where volume allows. Cardings generally sold around their established quotations whilst buying intent remained strong but price sensitive.

Crossbreds, in a dwindling volume scenario, continue to edge higher for wools 24 to 30 micron. The finer xbds of 24 to 27 micron remain the most well sought that buyers are paying up for. The few bales available of broader than 30 micron appeared to have stopped sliding backward, which is not before time, as the prices sit in very low historical percentile bands of pricing for the past 5 and 10 year comparison data sets.

Next week has 24,000 bales on offer with Fremantle sitting out to build commercial quantity to hold an auction. Demand appears strong again, so buying confidence has returned.

AUD Commentary - SAW

The Aussie spiked to a three month high this week, and in a repeat of last weeks action started Monday on its lows @ .7520, before trending higher, then rallying hard on Wednesday evening to the new high of .7635 following the U.S Fed Rate hike, and again Thursday after the strong Australian Employment numbers. Today Friday, the Aussie has eased back to .7580. There was good news from many quarters on the domestic front, while offshore Data from both China and the U.S confirmed their economies continue to expand. During the week the U.S fed lifted Rates 0.25% as expected, and the Fed also raised its growth outlook, saying real GDP will to rise 2.2% in 2017, while the unemployment rate should to fall to 4.2%.

Australia’s jobs report on Thursday smashed expectations for a third consecutive month as unemployment fell to 5.5%, leaving it at the lowest level since February 2013. Over the past three months employment has increased by 141,100, the fastest increase in any quarter since November 2004. However leading analysts remain divided on the outlook, with David Gradwell, Senior Economist at ANZ saying “Our analysis says, business conditions, profitability, capacity utilisation, and job advertisements have all been trending higher, and we also believe the Employment and Economic growth will do the same and rates over the next 12 months should remain unchanged”, while Tom Kennedy of JP Morgan and Shane Oliver, AMP Capital share the view that “ with numerous other indicators remaining on the soft side – including overall economic growth, consumer spending, non-mining investment, and wages growth – our view remains that there is far more risk of another rate cut than a rate hike in the next 12 months”.

The Aussie’s inability to build higher even on a large amount of positive fundamental news may hint at significant underlying weakness, opening the door for a reversal lower. An actionable setup is absent for now however, and the Aussie still remains caught in a large side-ways trading range. Overhead Chart Resistance is found at .7655, then .7698, while support is found .7554, then .7482.

Southern Aurora Wool forwards report

The Wool Forwards market bounced quite sharply this week, as demand from came from traders who scrambled to cover sale exposures. Talk centred on the strong demand that seemed to be reflected down the whole wool pipeline, and suggests there is more to come in this rally. In that regard we have also seen a strong lift in grower enquiry for the Wool Forwards market in general, with many of the Wool brokers reporting also that the recent price volatility has seen a good lift in grower engagement, with more growers asking what can be done to take advantage of this recent price rally. Interestingly the trend also over recent weeks has been to see the volume move further toward the liquid 21 and 19 Micron Contracts. This has occurred both in For-wards Market, and also through the Put Option market, which continues to expand as an excellent tool to create for growers a bespoke floor price, but also giving them the opportunity to enjoy any price rally. While this week most of the forwards trade action was seen in the near five month contracts, we did in fact have growers locking in prices out to the middle of 2018.