Australian wool auction markets generally consolidated around ruling price levels this week after the strong gains of the opening sale. Some handy advances did continue on super fine (16.5u to 17.5u) and ultra fine (finer than 16.5u) Merino wools, but on the whole, the market eased by around 20ac clean/kg in Australian dollar (AUD) terms. Significantly though, the market was largely unchanged to slightly dearer when expressed on a US dollar (USD) basis. This is significant given the world largely buys wool in this currency and therefore this is a true reflection of the market. The AWEX EMI (Australian Wool Exchange- Eastern Market Indicator) eased back 17ac for the week to close at 1801 ac clean/kg, but actually gained 3usc to finish at 1434usc clean/kg.

Following on from the extremely strong season opening, most trade participants had expected a largely unchanged market and just reactive to the USD v AUD exchange rate. This is largely what eventuated. What did surprise though was that the market held on and actually continued to generally gain ground throughout Tuesday and the most part of the Wednesday auctions before finally relenting to the large 54,000-bale plus quantity on offer in the latter part of the selling week.

Reports that fresh business had slowed into China did filter through in the middle of the week, but that is largely what is expected at this time of the year as that nation heads into it’s New Year celebrations in the middle of February. After such a hectic year for the Chinese and other countries as the mill owners and managers chased supply and faced the constantly rising price levels, a brief respite has probably been on the cards. Many traders believe this respite to be a brief interruption to the ruling trend, even though a few weeks of an easing purchasing policy may occur as many of the overseas wool users appear to have their immediate orders and machinery demands covered.

With very little in the way of greasy stocks being held in Australia, local buyers are more than ever keeping a keen eye on supply variables such as rostered quantities, shearing patterns and seasonal conditions. The past few months have seen our local exporters largely risk adverse by purchasing then selling on immediately, rather than going short and selling forward with no stock in their inventory. General expectations are of lower quantities upcoming, so this buying strategy appears cast in stone for the time being, as risk taking selling forward at these price levels is seen as unnecessary and a no win situation.

As prices have continued to soar, some nervousness has come to the fore regarding being able to pass on the price to overseas buyers. This is said to be particularly relevant to the woollen sector types. One can see this may well be the case as for example many locks lines are now fetching near $2,000/bale. Only retail sales can determine that future, but at present, reports are that wool and particularly Merino, continues to sell well in the shops and on-line globally.

Auction sales next week in Australia will be conducted earlier in the week on Tuesday and Wednesday as Australia has a national holiday on Friday 26th January. Around 43,000 bales will be offered.

AUD Commentary - SA Markets

This week the Aussie Dollar pushed higher, trading above .8010 on Friday, after hitting a fresh four month high earlier on Wednesday of .8023, just short of September’s high at 0.8125. The AUD is well higher than Monday’s open at .7898.

Since early December the Aussie has surged against all G10 currencies, with the exception of the New Zealand Dollar. As the interest rate differential between Australian and US remains unchanged, its suggests the Aussie rally is in strong part due to the tumbling USD, and there is little chance this will change soon as the market remains sceptical Trump can deliver what was announced.

During the week China’s GDP figures confirming the economy grew by 6.8% in Q4, which was above the 6.7% expected. It was the 12th consecutive China GDP report that beat market expectations. On Thursday Australia’s official employment report came in and the economy added 34,700 jobs for the month, with 12,440,800 people now employed. Australia’s jobs boom has now extended to its 15th consecutive month growth, the longest unbroken period recorded by the ABS. On the flip side, Australia’s hurdle to a recovery still lies in the absence of any wage growth, and the heavy household debt levels.

Technically, the Aussie fell short of September’s high at .8125, but momentum suggests this will be broken with a potential target of .8295, the high of January 2015, and then the rally might extend to the Fibonacci target level at 0.8451. On the downside, break of 0.7874 will indicate the market has topped and a steep downturn is likely.

SA Markets wool forwards report

The spot auction market finally succumbed to the pressure of a strong AUD and high price levels. The auction has been on a steady (and at times strong) rising trajectory since the end of September putting funding pressure on exporters and processors alike. All merino microns 18.0 through to 22.0 fell 20 cents. Forward markets traded steadily early in the week at anticipated levels with 19.0 reaching a high of 2140 for 19.0 micron and 1760 for 21.0 microns. Forward prices held during Tuesday and into Wednesday but the falls in the spot market began to impact the forward levels particularly into the late autumn. Bidding interest remains but at slightly cautionary levels. Exporters are still looking to manage their risk as volatility is expected to continue throughout the year. We expect opportunities for growers to hedge, particularly in the Autumn window, to still be there but possibly on restricted volumes.