Another good week at Australian wool auctions for sellers of Merino wools of all types and all descriptions. Prices were stronger from the outset and pushed upward right through to the close of selling. The crossbred sector didn’t fare as well as prices initially retreated, but pleasingly towards the latter parts of the final day, levels consolidated as buyers purchasing intent became more willing. The AWEX EMI (eastern market indicator) advanced by another 1% or 16ac/clean due once more to the advance of prices being paid in the Merino sector. The EMI closed the week at 1566ac which is 19% higher compared to the same sale as last season.

The foreign exchange (forex) currency markets played outside the considered norms this week as the CNY (Chinese yuan) and USD (US dollar) cross rates against the AUD (Australian dollar) behaved in a manner rarely seen. The CNY is generally understood to be unofficially pegged against the USD but this week saw the CNY depreciate by 1.2% against the AUD whilst the USD barely moved at 0.2% lower. As such the USD EMI lifted by 10usc to close at 1224usc/clean kg and the CNY indicator acted conversely and fell albeit just slightly.

The demand for all Merino wools remains in some of the strongest territory seen for many a season, and gains of 40 to 60ac were achieved this week. The past few weeks has seen a large portion of interest focussing on the super fine (finer than 18.5 micron) fleece sector. Buyers were initially cautious earlier in the season as large volumes within this market segment started to appear registering typically hard to place weak SS (staple strength) readings combined with high PobM (position of break % in the middle). Remarkably, the past few sale weeks has seen these types perform the best and selling under the most intense competition of any types. Some staggering results have been posted this week as some growers selling tender super fine clips averaged A$3,300 per bale for their fleece lines, with some readings as low as 16nkt within the clip. Almost all this interest is stemming from China.

At the other end of the spectrum, the best super fine wools on offer, and typically the domain of the Italian weavers, look the best value. Whilst still selling at an average premium of around 100ac, and getting strong returns for growers, the price gap between best and lowest quality has narrowed considerably. With the vast difference in top yields achieved, this price variance would be completely eliminated, and price in top per kg of wooltop would end up lower than the cheaper first cost wools.

The 19 micron and broader Merino wools also came under strong attention from buyers and prices escalated by a general 10 to 40ac. Merino skirting types showed the same tendency as their fleece counterparts with the 18.5u and finer most sought and 50ac dearer. Cother skirting types advanced 15 to 20ac. Cardings slowly continue their rise and added 30ac. Crossbred wools of all types were under price pressure from the outset and lost 35ac for the week.

Competition was strong from all buying sectors, but Chinese top makers were notably more active as reports filtered through of significant sales of Chinese wool tops into Europe. Forward sellers remained the main buying source, but indent and top making orders ably supported as did the Italian interest on better wools. Some Indian orders also were evident, but it is not clear whether they were indented or firm orders needing completion. Widespread would be the term to best describe the interest.

Next week a larger offering of 46,500 bales will hit the market. Sentiment remains good so prices should hopefully hold up.

AUD Commentary - SA Markets

It was generally an up week for the AUD (Australian Dollar), as it lifted off Mondays low of .7746, to hit a high Thursday of .7836, before drifting lower Friday morning to be at .7825 ahead of major figures due out today and tonight.

Domestically, the AUD was underpinned during the week by the strengthening of commodity prices, with Iron Ore and Coal lifting off short term lows, whilst Copper, Zinc and Nickel continued their strong run and remain at multi-year highs. The AUD was also sup-ported by better than expected ABS Housing Data showing the total number of home loans up 1.0 percent against the 0.5% expectation and Investment Lending up at a better than expected at 4.3 percent to A$12.633 billion for the month. Australia’s inflationary expectations also rose in October, as survey data from the Melbourne Institute showed 0.5 lift to 4.3 percent for October from 3.8 percent in September. The Reserve Bank of Australia (RBA) will release its semi-annual Financial Stability Review today, with a key focus being the RBA’s views on the housing market

Outside of Australia today the two major events are the release of Chinese Trade data for September, and tonight the release of U.S CPI and Retail Trade Data, and both of these will influence the USD and U.S Federal Reserve’s views on when to lift rates, especially as the release of the Fed Minutes Thursday showed officials were concerned over stubbornly low inflation, with several of them worried about another rate hike later this year.

Technically the Aussie held support this week at .7740 and is approaching the .7850 resistance. A break above this would see the market rally to resistance .7940 then .8120.

Southern Aurora Wool Forwards report

Forward markets traded strongly buoyed by continued strength in the spot auction. 18.5 micron forwards broke new ground trading at 2000 ac in November ‘17, 1955ac in January ’18 and 1950ac in April ‘18. The forward curve has flattened on all micron groups with merino qualities all showing spot prices of in excess of the 90th percentile.

Volumes improved marginally this week with 74 tons traded. This only represents only 1.6% of the underlying auction through put this week. With prices at record spring levels growers are yet to embrace the value of certainty over the fear of lost opportunity. Too much emphasis is being placed on the backwardation of for-ward curve and not on the absolute price being offered both pre Christmas and into the New Year. In dollar terms per bale autumn forwards represent 18.5 micron at $2400, 19.0 micron $2200 and 21.0 at $1900. Pre Christmas levels are around 2% premium to these levels.