Another week at Australian wool auctions whereby the ability of the market to hold firm in the face of usually adverse factors featured prominently. Whilst small reductions did occur on the Merino mid microns at both eastern sale centres the auctions generally produced firm to better prices on the majority of the sellers offered types.

The AWEX EMI (eastern market indicator) decreased by just 2 ac/clean kg to close out the last “half” of the season at 1522ac/clean kg, which is 16% higher or 211ac better than the close of 12 months ago. In USD terms, the EMI shot 15usc higher to 1173usc/clean kg as the stronger AUD failed to dampen the current strong demand. The EMI in USD closed at 1173usc/clean kg which is 175usc or 17.5% higher than last year.

The selling week commenced with buyers set to be much keener in their approach to purchasing, but still very much price sensitive. Most of the fresh demand appeared to be on all Merino fleece types broader than 19 micron and all Merino skirtings and Crossbreds. The large availability of Merino fleece finer than 19 micron had buyers very wary and the carding sector looked to be in a lull. As it panned out this was very much the order of trend the market immediately tracked to, so the week produced very little to surprise participants.

The much stronger AUD against the USD by around 1.5% probably took a bit of impetus from the local market, as did the relatively large offering of over 46,000 bales, but the underlying strength of demand was the underwriting factor to the firm market results.

The major buyers of last week continued their purchasing operations much to the similar patterns of last week. The largest local trader/exporter and the largest Chinese indent buyer set the pace and others basically fell into line behind them just picking away at the offering only. As Fremantle joined in to selling though, another large local exporter exerted strength into the better types of the Merino market and completely swamped other orders in the market. This strength continued into the final day and saw a strengthening on most types as other traders pushed to complete outstanding positions.

Top makers were also far more active this week and this took care of the sale lots containing higher vm and wool descriptions of “off standard” described types. Their stronger activities was also responsible for the dearer (+10 to 20) merino skirting market, as they looked for machinery fodder as the immediate glob-al supply of wool in general goes into hiatus for at least a month as Australia and RSA (South Africa) remain in sale recess mode.

The current overseas buying appears to be very much better as to being in tune with the Australian market. In the past, more often than not small sales would be attacked and prices rise to only see a fall in levels as volumes return or larger than expected volumes are offered without much notice. Accurate forecasting of volumes to our customers is vital and that can only help a stable market, and at these levels, most participants should be reasonably satisfied to see the volatility eliminated somewhat.

Wool sales in Australia are now in recess and will resume in the week commencing 7th August 2017.

AUD Commentary - SAW

The Australian Dollar is sharply higher Friday morning, trading at .7734, after hitting an overnight and weekly high of .7740. The Aussie has been trending higher all week from its Monday low of .7584.

Overnight Wall Street also hit new record highs, and the key driver for both markets was U.S Fed Chair Janet Yellens Congressional testimony, in which her remarks suggested a more gradual tightening of monetary policy than expected, and this helped spark a further rally in global equities and global commodity currencies. Most analysts agree the U.S. economy is healthy enough for the Fed to raise rates and begin winding down its massive bond portfolio. Sentiment was boosted after China reported upbeat data on exports and imports for June, the latest sign that global trade is finding traction again, as well the ECB President Mario Draghi in an interview said the Europe-an Central Bank may now only gradually wind down the QE, and that this massive stimulus has quite a few more years to run. The Australian Dollar also rallied on surging Iron Ore and Coal prices. Iron Ore has risen 6% in the last three sessions to $65.40 a tonne, and has now rallied 22.6% from May 13.

Today the AUD/USD is trading at its highest level since March 21, leaving it perilously close to the zone of heavy resistance running from.7740 to .7780, which blocked its last 10 consecutive rallies. Despite the bullish price action seen over the last few days Westpac FX Analyst Martina Song said the Aussie will again continue to struggle at this region. “ While the AUD/USD technically is holding in a gradual uptrend since early May, it will struggle around 0.7750 a level which has seen capped many times before”

Southern Aurora Wool forwards report

The auction market closed irregularly with exporters filling orders prior to the mid year break but unwilling to stock at these levels. This attitude filtered into the forwards with interest focused on the front months. 19.0 traded at 1755 which is near the peak traded forward level. 21.0 micron again traded strongly in August with all traded above the record 1500 level set over the last two weeks.

It will be critical to see if interest can be maintained during the recess as exporters weigh up the likely impact to prices as we move into the higher supply spring. Currently exporters are pricing a 2% discount into August, 5% into September and 7 to 8 % as we move towards the end of the year.

It is important to note that the discount off the current spot would still place prices at the highest spring levels ever.