Following the weeks recess in auction sales, Australian wool markets performed admirably this week despite the large volumes on offer. Merino types of all descriptions sold solidly and finished the week at similar levels whilst the crossbred and carding sectors sold to a dearer tone throughout. The AWEX (Australian Wool Exchange) EMI (Eastern Market indicator) gained 4ac to close at 1776ac per clean kg which is 264ac higher than a year ago.

Despite all currencies used in wool trading appreciating by varying degrees between 0.7% and 1.2 % against the AUD (Australian dollar), the wool market bucked that usually negative causing reaction on AUD pricing locally and continued upward. By the close of auction selling the EMI when expressed in USD (US Dollars) was 1% dearer or plus 14usc at 1377usc per clean kg. This eliminated all the losses that occurred in the last sale pre Easter in that currency.

The week commenced somewhat lethargically with drops across all of the Merino spectrum at the standalone Melbourne sale on Tuesday. That largely negative sentiment and subsequent auction results initially matched the general concern of buyers pre sale that the quantity was going to hamper the markets ability to hold prices. Also playing a depressing contribution is the ever diminishing availability of suitable quality wools to match overseas orders as wools that are harder to place into export orders that are of higher vm (vegetable matter) and higher poBm (position of break in the middle of the staple) become a more substantial make up of the offering.

By mid week as Fremantle and Sydney joined selling, the Merino market had shaken off most of the negativity and all prices commenced to stabilise and then exhibited small signs of improvement. Under volumes of near the largest daily offering seen for months this gave buyers a clear message that demand was still there and prices had probably adjusted downwards as much as they were going to for the immediate future.

The final day of selling sealed these thoughts and all Merino wool on offer tightened considerably. Some individual wool types at the finer end that had started the week 40ac lower had clawed almost all of those losses back by weeks end. Of most note was the fact that the Fremantle market (last to finish) recorded the highest closing levels of all selling centres from 19 through to 22 micron, which is a relatively rare occurrence.

The comeback and crossbred wools (25 to 32 micron) registered very mixed results for the week. At the finest end (24 to 26mic) prices achieved ranged from unchanged to 20ac lower. A far different story for the mid micron (26 to 31 mic) types as these wools were very well sought throughout and put on a very healthy 30 to 40ac or 4 to 5% for the week. The broadest wools of 31mic plus remained firm unchanged.

Carding wools of all descriptions continue to defy the generally considered high price levels currently being achieved and forged ahead by a further 25 to 35ac for the sale week. The appetite for these shorter wool types remain insatiable and any fall off in price has been very short lived for the past few seasons.

Next week sees volumes fall away substantially to just over 40,000 bales nationwide. Having passed the “volume test” with honours this week a strong market across all types is expected to continue.

Wool forwards report - SA Markets

The spot auction started the week listlessly recording losses over the first two days. There was little confidence shown over the Easter and Chinese holiday break and this translated to the merino qualities continuing to lose ground as it had done for 9 of the last 10 auction days dating back to the beginning of March. Sentiment improved in the forward late Wednesday as the market looked to find a level. Solid bidding on the forwards saw the May 21.0 contract trade close to cash and triggered renewed interest in the spring and beyond. Although the market still has a forward discount from an historical position the hedging strategy taken by sellers this week looks sound.

AWTA Key Test Data - March 2018

Total volume tested falls below last season.

• The monthly comparisons of Total Lots, Bales and Weight for March 2018 compared with the same period last season are: -8.7%, -13.4% and -13.7% respectively.
• The progressive comparison of Total Lots, Bales and Weight for July 2017 to March 2018 compared with the same period last season are: +4.1%, +0.3% and -0.1% respectively.
• AWTA Ltd has tested 279.1 mkg (million kilograms) this season compared with 279.4 mkg for the equivalent period last season.

AUD Commentary - SA Markets

The Australian Dollar enjoyed a stronger week lifting of Monday’s low of .7652, rallying to a high Thursday of .7772 before settling lower Friday at .7758. However the AUD movements were really dictated by what was happening to the USD as international news unfolded. Thursday’s high in the AUD came on the back of Chinese President Xi Jinping comments at the Boao Forum in Asia where he said Chinese trade policy would now reflect the concerns of its trade partners, particularly the U.S. This helped calm jittery markets concerned about a trade war. On Thursday POTUS Trump surprised markets by ordering his top advisors to look at how the U.S should re-enter the 12 Country Trans-Pacific Partnership. This news lifted the USD and Wall Street. During the week also the U.S FOMC minutes confirmed the Fed sees U.S Growth lifting, and inflation rising. Markets are now factoring in four rate rises this year, and put a June rate hike at 88%. On Tuesday RBA Governor Philip Lowe gave a speech where he said he could see no rate change in Australia for some time. He said while the Aussie economy is improving, heavy debt and very low wage growth remained a concern.

Technically the Aussie is still confined within a broad congestion pattern, bounded within range of 7642/7784. Presuming the resistance at .7784 holds then it’s likely the Aussie will correct lower to major support at .7500. Conversely a break higher through 7784 will suggest a rally with a first target of .7915.