Australian wool auctions this week followed along the same trend as has been seen for the past two or three weeks. Super fine and fine Merino types remain well sought after whilst the medium Merino types continue to drift. Crossbred wools are still struggling to find a stable level of trade, but the carding sector is enjoying good times and prices continue upwards under strong demand. Within all these minor adjustments to wool values, the AWEX EMI (eastern market indicator) barely moved and concluded the series of sales this week at 1522ac/clean kg or 3ac lower.

Those buying in USD (US Dollars) were the major beneficiaries of the week's activity with the USD EMI 2% lower at 1189usc/clean kg. This reduction was due almost entirely to the USD v AUD forex (foreign exchange) rates being favourably lowered by 1.9% week on week. Rather than the AUD being weak, it was the strength of the USD against the AUD and most other major currencies that produced the significant change.

Due to public holiday schedules differing across the Australian states this coming week, auctions were staged over three days, which in some ways helped the relative stability of pricing as only Wednesday was loaded up with quantity. The wool buyer's approach to the week could be described as cautious as most exporters appear to be operating to careful price sensitive strategies. Under this purchase method, it is more the price of inventory intake, rather than volume that is the priority.

Sentiment remains positive and new business is seemingly available in adequate volume to maintain the current market, but the risk appetite profile of exporters to take on forward sales without coverage is low. As the industry finances are being stretched, risk taking takes a back seat, as many trading participants predominantly focus on and service their major client's immediate needs. The aim is to turn sales over safely, even at perceptively low profit margins.

The current late winter/spring has failed to produce any significant rain across most or our wool growing areas, so the drought conditions continue to worsen daily. While the current shearings are producing very nice wool clips, albeit with growing Pobm (position of break in the middle) readings, the further into the spring/summer shearing the strength and yield readings are also likely to fall away, but Pobm results will get better the closer to Christmas/New Year we get. Presently, in the superfine area we are seeing discounts of up to 80ac clean kg for high Pobm readings (roughly 75pobm and higher), and in the 19mic and broader area up to 50ac/clean kg. The longer (100mm plus) wools are most affected as they produce a progressively larger CVH% (co - efficient of variation in hauteur %) result.

Merino fleece types within the 20 micron and finer area gained a general 20ac/clean kg for the week, whilst conversely 21 micron and broader fell away by 15 to 20ac/clean kg. Skirtings followed the pattern of their Merino fleece counterparts and the Merino carding sector continues to strengthen daily and by week's end a decent 25 to 30ac was added to their values. Crossbred types and descriptions struggled to maintain their level for 28 micron and finer, but wools broader than 28 micron fell by 15 to 20ac.

Next week in Australia we have 40,500 bales scheduled to be offered. Similar operations and sale results to this week are expected as next week is considered the last week which allows fulfilment of September shipment commitments. Some minor instability may occur as buyers fill outstanding orders and then reassess their forward positions.

AUD Commentary - SAW

It was a tough week for the Aussie Dollar against a surging USD, as it fell from Monday’s high of .7964 to a six week low Thursday low of .7800, before lifting Friday morning to .7856. The AUD also fell quite sharply against a basket of 3rd currencies.

A steep fall in coal and Iron Ore prices to a three month low this week added further pressure, with Iron Ore today hitting $62.90 a tonne.

The good news out of the U.S kept on coming, as overnight an upward revision to GDP growth to 3.1% put it on track to see the fastest growth since 2015, and this helped the S&P500 and Dow Transport Indexes hit new record highs.

The two major pieces of news this week were the strong endorsement for President Trumps proposed multi-trillion dollar “Tax Package” which if passed would bring in the biggest changes in nearly 30 years, and Fed Chair Janet Yellen’s comments that U.S rates need to rise despite the uncertainty of the inflation path.

In Australia domestic news was also positive, as ABS Data showed Job Vacancy Rates soaring, rising by 6% to 203,700 and lifting to 15.4 percent in August quarter from 9.5 percent in the corresponding period last year. Chief Economist at Westpac, Bill Evans again said the market has it wrong in pricing not only one, but two rate hikes over the next 12 months. He think that rates will not only be left unchanged at 1.5% next year, but in 2019 as well. Evans says rates will remain on hold as Australia works through tepid economic growth, heavy debt, a lack of wage pressures, ongoing consumer caution and a slowdown in China’s economy.

Technical View: Greg McKenna, chief market strategist at AxiTrader, said that the AUD could face “substantial downside” should the modest recovery in the USD go up a gear in the days ahead .“I expect that to be the case a rally of 2-3% from here. That wouldsuggest an AUD/USD could test 7740/50 support, and then perhaps even the next 0.7650. The market is marginally oversold at the moment and a further small bounce is likely before another slide.

Southern Aurora Wool Forwards report

An up and down week at auction and the forward markets. The forwards traded near cash in November and December before falling away. The split auction days increased the choppy market outcomes. Forward volumes were only moderate as both buyers and sellers looked for direction. Support at auction Thursday saw more bidding interest and the forward curve flatten into Christmas on the finer qualities. 19.0 micron traded early in the week at 1760, then down to 1750 before closing Thursday bid at 1770. Middle microns particularly 21.0 microns eased in the spot market over the week. Bid early in the week at 1530 the 21s traded at 1520 slightly under the closing quote.

We expect the curve to remain flat next week into the Christmas recess. Interest in the New has moderated due to the increased volatility. Anticipated trading levels next week should present growers ample opportunities to hedge through summer at historically sound levels.