Wool auctions in Australia continued this week to advance price levels strongly. The Merino sector wools were once again the most sought after with good gains of 1.5 to 2% being commonplace. Crossbreds and cardings were not neglected by any means, as those wools placed a further 5 to 15ac upon their previous values.

The AWEX EMI (eastern market indicator) increased 27ac/clean kg or 1.8% for the week to bring the closing level to 1533ac/clean kg. When measured in USD, the EMI rose 12usc to be 1159usc/clean kg. In both AUD and USD terms the market looks like seeing the season out at levels of almost 20% higher than 12 months ago.

The extremely low supply of just over 20,000 bales nationwide obviously played a significant factor in the market strengthening. In fact, AWEX are reporting that the volume of Merino fleece offered this past week was the lowest for more than 8 years. Just the two eastern centres operated as Fremantle opted out due to lack of wool, which is normal for this time of the season. Some wool selling brokers are also reporting that It is apparent that many wool growers are opting to hold their clips and then sell in the new financial year. This is leading to sales being loaded for the first 2 sales in July, which more often than not, leads to buyers being able to be act more selectively.

The weakening Australian dollar (AUD) against the US dollar (USD) was also a positive influence as rates went 0.8% in favour of over-seas buyers. Contrary to the rising market levels and favourable currency, buyers and exporters reported a widespread lack of fresh business being achieved. The purchasing at auction was therefore being dominated by those buyers looking to close out any out-standing forward positions. Stocktaking by exporters at these levels was reported being at a zero interest level.

The indent buying orders from China were initially aggressive on Merino fleece, but on the final day, particularly in Melbourne, the orders seemed to dry up almost instantaneously. This pull back put a shudder through the auction room, and towards the close, most buyers were reporting a market at 15 to 20 lower on the last sections of the sale day. Sydney was far stronger throughout on this final day and closed at levels 15 to 20 higher but that market had traded at least 15-20 cents below Melbourne on the first day of trade, so market alignment was more of the story arising from the opposing market results.

Hidden amongst the general 30 to 40ac gains in the Merino sector, some differing results were achieved. The small offering of the better types destined for Europe were upwards of 65 to 70ac dearer, with 16.5 to 18 micron sale lots taking most advantage of the stronger demand. Conversely, those wools with 1.5 to 3 vm and 16.5 to 18 micron headed downward and were 15 to 20ac cheaper by the close of selling for the series.

Next week sees 37,000 bales to go to auction which should see this seasons’ sold at auction figure go through the 1.7million bale mark. Some purchasing hesitancy may occur as volumes in the next three weeks are substantially above the offering of the past month or so. With buying intent so sporadic recently , it seems certain an unchanged market is the least likely result.

Southern Aurora Wool forwards report

An interesting week on the forwards. Volume was moderate in a week where unprecedented Spring levels where paid. Growers had to accept discounts to the spot market of 50 to 100 cents to achieve hedging levels of 1500 in August and 1450 in September. Although 3% and 6% discount seems on the face of it to be steep, but in light of the current volatility, record high prices and historical data in makes more sense.

Not unexpectedly the market falls into the spring on higher supply in most years. What is welcomed from these figures is that currently August and September hedging levels are at or exceeding historical auction peaks. In dollar terms for 21.0 micron fleece this is over $1800 per bale. Next week we expect forward prices to contract a little ahead of the spot auction. Exporters are still looking for some off shore demand signals as most mills continue a wait and see approach.

AUD Commentary - SAW

The Australian Dollar has been under pressure most of this week, and today Friday, is at .7538, and on the week’s low, after starting Mon-day, at the week’s high of .7625. We mentioned last week, that with all the good news received (especially employment) the Aussie should have powered higher, and its inability to do this was a real concern and was a reflection of the deeper underlying issues of the economy, namely heavy falls in key commodity markets, almost stagnant wages growth, and very high personal debt levels.

Technical Analysis - The Aussie’s inability to break higher through short term resistance 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 pattern. Overhead Chart Resistance is found at .7655, then .7698, while support is found .7522, then .7482.