The depreciating price trend continued this week at Australian wool auction sales although the rate of falls slowed considerably. Merino wools of all types and descriptions were allowed to drift backwards from the outset by buyers, but the under-current of swelling demand became evident towards the close of selling and arrested the slide on quite a few of the type sectors. The AWEX EMI (Australian Wool Exchange- Eastern Market Indicator) fell by 27ac for the week and settled at a week ending figure of 1751ac/clean kg.

The foreign exchange (forex) rates on all of the major currencies didn’t really stimulate overseas buyers to move trade sentiment to the positive either. Those rates all appreciated against the Australian dollar (AUD) by varying degrees of between 0.4 and 0.8% . As such, the EMI when expressed in US dollars was far less affected and drifted 13usc lower or 0.9% lower to 1379usc/clean kg.

After a few weeks of going against the trend of most other currencies moving up against the AUD, the Euro finally succumbed and joined that trend and recorded the strongest movement. For buyers using this currency, this dulled the AUD falls and eliminated most of the advantages of the weaker auction prices. This remains probably theoretical only though, as buyers reported a high percentage of the wool on offer was not suitable to this market due quality.

The factors hampering wool markets at present remain similar to the past few weeks since Chinese New Year break put the skids under the market. The high prices and finance access issues, combined with the reduction in quality of wool on offer are predominant factors in the market. Additionally, it seems having the major buyer of wool globally basically out of action for a week whilst wool auctions forged ahead regardless probably didn’t help either.

Access to finance is an issue that all would understand. Put simply, it takes twice as much today to fill the same order for the same type it did eight years ago. Also, with wool prices being considered on the high side at present, this usually prevents local buyers stepping in to stock wool whilst waiting for clearer demand signals from their clients. Essentially this means too much risk for very little reward for the buyer exporters. Conversely, the sellers are happy to continue to sell and take current prices on offer and hence the sliding market. So whilst demand is still there and supply is OK, this lull is typical of spot markets reacting to the immediate hand-to-mouth demand situation that the wool market has been operating for years now.

Merino wool movements this week were all to the negative with the superfine sector most affected. The fall in prices for wool finer than 18.5 micron was exacerbated by diminishing quality and losses of 50 to 60ac were recorded. The fine and medium wools held on better with prices 20 to 30ac lower. The skirting segment behaved similarly but the cardings and crossbred wools performed the best with 10 to 15ac lost and a large portion of that due mainly to the stronger and disadvantageous USD v AUD rates.

Around 39,000 bales is rostered for auction in Australia next week. A firming tendency in prices on the better wools and a lift in buying intent from exporters witnessed at the close this week just may signal a slowing in the fall. The lack of the usual strong top maker interest and participation in the market does remain significant though.

Wool forwards report - SA Markets

The auction market continued to struggle to find a level. 19.0 micron lost 40 cents and 21.0 micron 25 cents with exporters finding it difficult to find off shore demand. Processors continue to look for further relief from a market that has trended upwards for 28 months. It is important to note that during that upward channel the market has suffered numerous retractions the deepest in the March/April period last year of 10% and an 8% fall in the early spring of 2017. The current fall is 19.0 6.6% and 21.0 4%. The for-ward market is pricing a similar pattern for this season but off the higher levels achieved this February.

The 21.0 micron levels look more attractive as the forward market is indicating that the difference between 19 and 21.0 will hold around the current 200 cent mark. This is about the average of the last two years and above the longer term (10 year) average of 84 cents but below the peak of 471 cents achieved in March

AUD Commentary - SA Markets

The Australian Dollar had a firm start to the week after the POTUS Trump exempted Australia from tariffs on steel and aluminium imports, and this was followed up by a rally Wednesday to the weeks high of .7916 after official data from China showed stronger than expected growth in industrial Production and Retail Sales. The rising Iron Ore and Energy prices also helped support the AUD.

However the AUD tumbled to the week's low on Friday of .7796 against a U.S Dollar rally on remarks from Trump’s new chief economic adviser Larry Kudlow who rattled global markets by saying the USD should be “stronger” and then followed that up by saying “China needs a comeuppance on trade, with a tough response on tariffs against imports”.

Data out of the U.S this week confirmed further the remarkable strength of the economy, and followed on from last Fridays huge gain in U.S. non-farm payrolls of 313,000 jobs in February, the big-gest gain since mid-2016. Overnight a Reuters Poll of leading Economists swung in favour of predicting four rate hikes by the Federal Reserve this year.

Macquarie Bank Economists said this week they now no longer see the RBA lifting interest rates in 2018, believing rates will not rise till early 2019. Macquarie also added that that Australia’s housing market seems to have settled with prices in Sydney and Melbourne having broadly flattened out.

Technically the AUD remains contained by a large sideways trading pattern. First key support is found at .7712, then .7655 and a break there would test the December low of .7500. Resistance is seen at .7928, then at .8010. For the moment bias is to the downside.