Wool auction results across Australia went largely to pre sale ex-pectations this week. Unfortunately it was to the negative in the leading market sector of the Merino fleece, but all other types and descriptions on offer managed to hold their levels. The AWEX EMI (eastern market indicator) decreased by 26ac/clean kg or 1.7% for the week to bring the closing level back to 1507ac/clean kg. When measured in USD, the EMI lost just 4usc to close at 1155usc / clean kg, as the AUD strengthened against the USD to minimize the loss in USD terms.

The past week has seen the final sale of the 2016/17 season being held and 1,709,657 bales of Australian stored wool was sold for the season. This was over 56,000 bales more compared to the 1,652,720 bales sold last season. Similarly, AWEX reports around 6.65% more first hand wool was offered at auction this past sea-son, compared to 2015/16. Closing price levels in AUD and USD were 16% and 20% higher respectively on year to year values.

The trading week commenced with buyers having eyes firmly planted on upcoming rostered quantities being advertised for the first 2 sales in July, more-so than the auction of this past week. The larger auction quantity of over 90,000 bales scheduled for those weeks (compared to 50,883 bales in weeks 50 and 51) released the pressure on immediate purchasing and the market somewhat suffered this week because of that. Brokers reported growers hold-ing wool for sale into the new financial year as being the reason for such a disparity in offered volumes, but anecdotal accounts of when wool is actually deemed as being sold for taxation reasons is seemingly still variable.

As buyers relaxed their purchasing strategies and intent in the early sessions of selling, Merino fleece prices retracted accordingly and alarmingly in some cases. Average super fine (finer than 18.5mic) types were most affected, and whilst general quotes indicated 50 to 70ac clean kg losses, some individual lots were well over 100ac lower than the previous sale. 19 micron and broader types finished the week at a general 40ac lower level. All of the skirting, cross-bred and carding types and descriptions defied the cheaper Merino fleece market and remained in strong demand. Prices were firm unchanged for the series.

Volumes rather than demand was put up as the primary driver of prices retracting, and this was well and truly borne out with the resounding halt and recovery on the final day’s selling. Overseas users took advantage of the more advantageous prices available from exporters, and this demand transferred immediately into the auction rooms on Thursday almost completely stopping the slide in Merino fleece prices. In fact wool types broader than 19 were quoted by many as 10 to 15ac dearer for the day.

The strengthened Australian dollar (AUD) against the US dollar (USD), up 1.38% for the week, spooked many offshore buyers and this strong gain also perhaps persuaded a few to lock into some of the current prices. Whilst quantities are large in up coming sales,(50,000+ next week) the world is in a period whereby basically Australia is the sole source of quantity for Merino fleece. Funda-mentally, demand is consistent and strong and given the strength seen at the close, markets should remain largely to the positive.

AUD Commentary - SAW

Just when you thought it was getting buried the Aussie roars back to life, rising all this week to a fresh three month high, helped by a surge in key commodity prices, but mostly by a tumbling USD. Today, Friday the Aussie is trading at .7685, well higher than Monday’s open and weekly low of .7560. This week bullish comments from Europe on monetary policy helped sink the USD, as the Euro hit a 1 year high and the British Pond surged. The hawkish remarks came from both Mark Carney, Governor of the Bank of England (BoE) and ECB President Mario Draghi as both said “some removal of monetary stimulus is likely to become necessary with improving growth and we see policy becoming more conventional,”. Mark Carney also said that the BoE would debate the need for a rate increase “in the coming months”. In commodities nearly all base metals, grains and Energy prices were sharply higher over the week, but the outstanding market was Iron Ore which surged 4%, with the price up by a huge 20% since June 13. Late today we will see key release of Manufacturing Data from China, and that may affect the Aussie. In local news data from the Housing Industry Association showed that new home sales in Australia up i for the second straight month in May at 1.1%, faster than the 0.8 percent rise in April.

Technically the Aussie has continued to trade within the confines of an ascending trading pattern, which doesn’t yet look that compelling. A breach higher targets a longer-term trend-line resistance extending off the 2016 highs, currently around at 7705. This threshold is backed closely by a critical resistance zone at 7735/56. Both of these regions previously were exhaustion zones, and probably represented good-short entry points. Its worth noting also the market traders are still net-short the Aussie, with only 32.1% of traders are long, suggesting more but limited Aussie upside

Southern Aurora Wool forwards report

The forward markets finished the financial year with a whimper. Record levels paid last week did little to attract interest from growers. Only 15t traded in the new season albeit at historically good prices. In the 21.0 micron August traded at 1490 and September 1430.

Exporters were hesitant to get aggressive further out as demand in the spring is being constricted by the current price spot price. Bidding remained over 1400 cents through to end October all week even as the spot auction fell 30 to 50 cents to the close. This drew scant interest from growers.

We expect exporter interest to be maintained around the 1450 to 1470 level in August. This is about 5% under cash (1545). This shows a degree of confidence that the fall in prices this week at auction (around 2.5%) will steady and hopefully bring demand. Concern for the Spring centres around the demand being sufficient to maintain prices at historical highs when faced with the seasonally increased supply.