A competitive environment saw strong gains across all wool types and descriptions at Australian wool auctions. Price gains of well over 3% in AUD (Australian dollar) were commonplace. The AUD also strengthened against the USD (US dollar) by 0.7% for the second consecutive week and so gains in USD terms were even greater. The AWEX (Australian Wool Exchange) EMI (Eastern Market indicator) gained a very healthy 49ac to close at 1825ac per clean kg. This level represents a 21% increase from just one year ago, or A$3.13 per clean kg higher.

The theoretical effect of rising AUD rates on the forex (foreign exchange) is usually deemed depreciative, but for the second week running, the opposite has occurred and by large margins. AUD Forex rates on most major currencies went 0.5% to 0.7% stronger and coupled with the 2.8% rise in local markets, the EMI when expressed in USD (US Dollars) closed out at 3.5% dearer or 48usc higher. This led to the USD EMI finishing at 1424usc per clean kg.

The past few months has some uncharacteristic buying strategies being witnessed in the sale rooms across Australia. The local market just doesn’t seem to move upward any longer in margins indicative of the overseas pricing signals. Indeed, when the market does decide to move, it shoots well above any of the expected or sold at levels, but then inevitably succumbs to that price sensitivity and drifts backward. All this activity though is on an ever increasing trajectory, with this weeks levels generally approaching the record highs once again, and highest ever levels on some of the individual micron brackets.

Nearly all of the positive auction activity this week is thought to have stemmed from China, but sales into India were also thought to be active in the market. This is good news considering that the latest export figures to India are showing some of the lowest volumes recorded. Just 5% of the clip is now being exported to India, just matching the percentage that is currently flowing to the Czech republic and Italy. For many years India has been a very important user of Australian wool and usually sits as the second largest buyer and manufacturing destination of our wool clip.

The supply situation of Australian wool is now starting to become an increasingly unknown issue to buyers as the extended drought continues across almost all of the wool growing areas. Buyers are very aware and sympathetic to growers facing some of the worst climactic conditions seen for decades in parts. Combined with the ever more popular accelerated shearing (6 and 8 month) these factors are complicating volume and wool quality forecasts.

Market movements are all positive to report this week as Merino fleece and skirtings finer than 18micron added a general 30 to 40ac whilst all types broader than 18micron gained 50 to 70ac. Once again, those sale lots exhibiting favourable pobM (position of break middle) and lower cvh% were most sought as was higher yields. Carding wools less affected and moved just 10 to 15ac higher. Crossbred wools also enjoyed the gains and moved 40 to 60ac higher with some extraordinary results of +130ac on some 24 to 26mic types.

Next week sees volumes scheduled to sell at around the 43,000 bale mark. Demand remains strong and Fremantle sold strongly through to the close which usually indicates a strong market continuing.

Wool forwards report - SA Markets

The week was highlighted by strong moves in the forwards early in the week on anticipation that the spot auction would continue to rebound from its Easter lows. April, May and June all traded at a premium to cash Monday and Tuesday. The spot auction delivered setting a new high in 21.0 microns and retracting much of the March losses in 18.0 and 19.0 microns. The strong tone continued into the close Thursday. Brisk buying by exporters in the forwards (19.0 peaking at 2070 for June and 1940 for 21.0) slowed a little Thursday. More importantly traders seized the opportunity to sell at these new highs as new demand was yet to be confirmed. The strength in the front months has translated to better interest in the spring and into the new year. Exporters are hesitant to set long positions too far forward but are looking for opportunities to create trades into the spring if they can partly hedge their sales. Selling depth into the spring and summer remains an issue for the forward markets. The decision for growers is not being made any easier with current volatility and prices. The value of guaranteeing returns at historical highs is clouded by the seemingly relentless, but welcomed momentum in prices. The risk of demand destruction remains although somewhat balanced in the short term by supply. Other risks, whether it be currency, political or unknown, remain in place. Developing a strategy to mitigate these risks and manage margin should be paramount when the market is at these levels and maintaining momentum.

AUD Commentary - SA Markets

The Australian Dollar had a choppy week, and fell 50 points on Friday to be trading at .7730 as the USD lifted on rising Bond yields and better economic news. The U.S 10 Year Bond rallied to 2.9%. Despite rising Iron Ore and Oil prices the Aussie failed to gain any traction. The disappointing Australian employment numbers released this week underscore the problems the RBA faces with an economy saddled by high personal debt, tepid inflation and weak wages growth. It also leaves the economy highly vulnerable to any global financial correction. This presents an issue for the RBA as the U.S Federal Reserve will likely be hiking official interest rates at least three more times this year, while many analysts believe the RBA will be forced to leave rates on hold for at least another 12 months. This also suggests the Australian Dollar is unlikely find any major upside support through this period. Technically the Australian Dollar still remains contained within a large sideways trading pattern. However within that larger pattern, the Aussie has slipped to trading within a small descending down channel that started in February. Overhead resistance is found at .7815 then .7925, while key support is at .7685 then .7622.