The rocketing price gains of recent weeks at Australian wool auctions took a breather this week, with price adjustments across the board both up and down. Very mixed buying patterns were seen, with export buyers committed to continuing their accumulation of all Merino types 19.5 micron and broader, while they were prepared to let the finer end of the Merino market drift. The AWEX (Australian Wool Exchange) EMI (Eastern Market Indicator) subsequently closed the week 16ac lower at 2011ac/clean kg.

Despite a generally cheaper market in Australian dollars, the market provided no relief at all to our major overseas buyers who all buy in US dollars. The EMI when expressed in USD (US Dollars) bucked the AUD trend and closed out 7usc higher at another highest ever recorded market indicator level of 1540usc/clean kg. This USD EMI figure is indicative of the underlying continuing strength of demand, but the local auction market is starting to show that unpredictable price easing within individual types is likely to occur as orders are filled, particularly the larger indent orders.

The fine/super fine end of the Merino fleece market (19 micron and finer) bore the brunt of some price resistance and drifted downward from the outset to be quoted generally 40ac lower. This negativity was brought about mainly due to the larger volume of lower quality, harder to place wools on offer, but some apprehension of local buyers to take perceived “cheap” lots into a stock position was also a factor. The prices for these types were on a controlled slide throughout selling, except for the very latter part of the week which saw some significant price holes in the lower types finer than 17 micron, mainly in the Sydney centre.

Despite the weaker selling tone for the week, the better superfine types finer than 19 micron were still being well sought and managed to basically hold onto their established values for the series. One of the largest top makers in China competed strongly with the usual Italian operators and quite often outbid them for some of the highest quality and specified lots on offer.

It was a total juxtaposition for the Merino fleece market in that sale lots of 19.5 micron and broader remained under intense competition for the week. Whilst selling on a firm unchanged basis at Melbourne, some strong Chinese and trading interest at Sydney saw those levels head 15ac higher to more or less catch up with the values on offer in the Southern centre. Incredibly some individual lots around 22 to 22.5 micron were achieving the same money as wools up to 2 or 3 microns finer as the shortage of these wool types is being exacerbated by the continuing drought conditions across most of Australia.

The Merino skirting market set the same path as the fleece equivalents with general losses of around 30ac/clean kg, except for the better brokens and pieces lots carrying around 2% of vm (vegetable matter) which fully maintained their price levels. The comeback and crossbred fleece sector (25 to 32 micron) was affected by a short supply, very questionable quality and under prepared lots and therefore fell away by 5 to 10ac/clean kg. Cardings concluded the selling week at similar levels, although the low availability of any one type restricted any meaningful market direction being obtained.

Next week sees all three centres in operation with 29,000 bales being made available to the trade. South Africa had its last sale for the season this week and won’t return to holding auction sales until the 15th August. This forces all buying attention upon Australia for the next two months, during which time there will be 6 auction weeks as Australia will recess for three weeks on the 13th July.

Wool forwards report - Southern Aurora Markets

The auction market finally sort relief this week after unprecedented rises through May. The 19.0 micron index rallied 225 cents (10.7percent), 21.0 283 cents (14percent) and the EMI 181 cents (9.8percent). Forward markets started the week strongly and held up relatively well as the auction lost ground. New highs were set early in the week with trades into the late spring at 2100 for 19.0 and 1925 for 21.0. New year hedging also peaked with April trading 19.0 micron at 2000 and 21.0 at 1910.

Although the end of the week was more subdued opportunities should still be available for growers looking to mitigate risk for next season clip.. Forwards closed Thursday night still showing 19.0 micron bid at 2100 through the spring down to 1950 in December. The auction market on 21.0 microns has held firm under diminishing supply to the end of the season. This has left spring levels at a strong basis to the finer wools with August bid on close at 2050, September 2000, October 1925 and November 1900. Although a discount to cash these hedge levels represent significant premiums over last spring AWEX Auction average September to November on both fine and medium wools 19.0 mic @ 1900 and 21.0mic @ 1585

AUD Commentary - Southern Aurora Markets

It was a big data week locally, with a number of important releases, the highlight being the mid-week release of Australia’s GDP Data, which was better than expected, and saw the Aussie spike to a high of .7678, before sliding back Friday to .7620.

According to the ABS, real GDP jumped by 1% during the quarter, the largest increase since late 2011, and it’s now been 106 quarters, or 26.5 years of continuous growth since Australia last experienced a technical recession. This saw Australia’s year-on-year growth lift to 3.1%., and well above the 2.75% level expected by the RBA. However it was a surge in Exports that mostly lifted GDP.

Ray Attrill, Head of FX Strategy at NAB said renewed global concerns over emerging markets, including Brazil appeared to lift the USD, and pressure the AUD. The AUD is often seen as a barometer of investor risk sentiment, being so reliant on the performance of the global economy.

Suggestions are that the RBA will be forced to leave rates on hold until at least mid 2019. On the good news side this week, Iron Ore and Oil prices rallied and the NASDAQ hit a new record high.

Technically the Aussie still remains contained within a large sideways trading pattern, however the rally this week, and small pull-back still looks quite constructive as the Aussie continues to carve a series of higher-lows. Resistance is at this week high of .7670, and a break above that would likely see a rally to 7860. However in the bigger picture we view this rally as more corrective, and feel that once over, the Aussie is likely to fall and retest the lows, with first support at .7480.