The market downturn of the past two weeks seems to have halted across most types on offer this week at Australian wool auctions. Weak market conditions were witnessed initially on the first day of selling, but this was quickly followed by a solid consolidation. Prices then commenced to rise towards the close, particularly across the FNF (Free to Nearly Free - less than 1% vegetable matter) Merino fleece wools of all qualities. Cardings remained in a negative trend though, but the rapid falls of past sales were largely contained to relatively minor daily losses. The AWEX EMI (Australian Wool Ex-change- Eastern Market Indicator) registered a 6ac clean/kg reduc-tion for the week to close at 1738 ac clean/kg. In USD the EMI remained fully firm at the same level of 1398usc clean kg.

The market this week reflected more-so the operations of local buyers and reactions from overseas manufacturers almost immediately followed this stronger lead. Quite often the sale rooms are not the best identifier of global demand trends, but this week the positive sentiment of continuing and strong demand for Merino was borne out through that means. Whilst China has been relatively quiet in enquiry and new business, other wool-buying destinations took the opportunity at the lower levels to execute some inventory purchasing. Operations appeared to return by weeks-end though as Chinese enquiry ramped up to normal levels.

Some significant moves in the market were recorded this week but not necessarily published. In a very small offering of ultra fine Merino (finer than 16.6 micron) an extraordinary gain of around 160ac clean/kg was made. A strong order from a high quality mill in China ensured those levels, giving intense competition and quite often outbidding the Italian orders, albeit in a very low volume scenario.

Generally speaking, the Merino fleece markets appreciated by around 20ac clean/kg whilst the skirtings were largely unchanged to slightly dearer in a very turbulent sale week. Crossbred and comeback types registered small losses but encouragingly were rising at the close. Cardings disappointed again by retreating 35ac, but this a far better result than the heavy losses seen for carding wools last week.

Improving market sentiment from the Merino fleece sector is likely to flow into the upcoming sales as demand signals get clearer once again. The next 3 weeks sees around 40,000 bales being rostered to sell weekly, which is significant in that it is around 10% less than that offered through February of last year.

AWTA Key test data summary for January 2018

The monthly comparisons of total weight for January 2018 compared with the same period last season show that 14.2% more was tested.

The progressive comparisons of total weight for July 2017 – January 2018 compared with the same period last season show that 3.1% more was tested.

AWTA Ltd has tested 213.7mkg (million kilograms) this season compared with 207.3mkg for the equivalent period last season.

AUD Commentary - SA Markets

The AUD opened the week holding the gains of the previous week at around 8120, before a surprisingly weak Consumer Price Index release mid-week caused the AUD to tumble to a low of .7987, before recovering a little today, Friday, to 8025. The release showed inflation had unexpectedly slowed, coming in for the year at 1.9% against a 2.0% expectation. Also on Wednesday the Reserve Bank of Australia said that private sector credit in Australia was up only 0.3 percent for December - shy of expectations for 0.5 percent rise, and on a yearly basis, credit was up 4.8 percent - against 5.2% forecast. On Thursday Housing Permits for December tumbled 20%, against an expected 7.6% decline, while for the year they were 5.5% lower, against an expected 11.5% rise. Adam Boyton, Chief Economist at Deutsche Bank, said unless the weak CPI numbers rise, then it would be very hard for the RBA to lift interest rates this year and if anything may prompt talk of a rate cut, and thats against the U.S Federal Open Market Committee (FOMC) comments which strongly suggests the “Fed” is likely deliver three rate-hikes in 2018. While the AUD struggled against the USD, it fell against most third currencies, as did the USD. Greg McKenna, Chief Strategist at AxiTrader, says the AUD has been undermined by weak inflation along with a negative sentiment towards the economy. Data out of the U.S again confirmed the solid growth happening there, and is synchronised with the global growth outlook coming out of China, Japan and Europe.

Technically the Aussie still remains in a broad side ways pattern, unable to break higher despite the recent rally. The price action this week suggests a short term top has formed at 0.8135. The rally has unravelled ahead of the Reserve Bank of Australia (RBA) meeting on the 6th of February. Key support is now at .7940, then .7810. On the upside, a sustained break of 0.8124 could target the higher Fibonacci level at 8451.

SA Markets wool forwards report

The placid demand early in the week stagnated the forwards as both buyers and sellers approached the week cautiously. The auction market weakened substantially on Wednesday which bought out modest selling interest. Trading levels into the autumn, although of the peaks of a fortnight ago, still represented excellent hedge numbers with 19.0 micron executed at 2045 and 21.0 at 1730.

The spot market recovered Thursday highlighting the volatile nature of the current price landscape. At current price point the market is very susceptible to minor changes to supply and demand dynamics. Funding and cash flow issues will affect weekly demand even in an expected tight supply environment. This coupled with normal demand decay that follows sustained strong prices will result in increased volatility.