The last selling week of this season has just past. Whilst a bit of a soft finish occurred, it hardly takes the gloss off what has been a stellar 2017/18 Australian wool auction year. The subdued interest from the trade continued into this weeks selling and a mellow AUD forex movement against the USD allowed the buyers to try and let the market drift backward. In reality this was rather ineffective as by the close of selling almost all better wool types and descriptions started to gain momentum once more. The AWEX (Australian Wool Exchange) EMI (Eastern Market Indicator) did decline 17ac for the week and closed at 2056ac/clean kg. Year on year the EMI improved a substantial 531ac/clean kg or 34.8%.

The EMI when expressed in USD shifted 12usc lower to 1512usc/clean kg, a similar percentage loss in line with the AUD EMI. The year on year comparison shows a net gain of 354usc or 30.6%. The forex of the AUD versus USD had a relatively stable season after starting the year at 0.7597 and concluding today at 0.7353, albeit with some sporadic, large variations up and down providing some spark to, and some negative impacts upon, the market.

To highlight what a robust market price is currently available to wool grower sellers, the seasonal average of the market for 2017/18 was an EMI of 1729ac/clean kg or 1337usc/clean kg. Those average seasonal rates sit 16% lower than what is available at auction at the moment. Latest figures also show that these extraordinary gains have occurred in a season where supply was unchanged to slightly higher, but anecdotally this supply has been pumped up by growers choosing to go to 6 to 8 month shearing intervals in-stead of the normal 12 month pattern.

Good news for some of our wool growers as some reasonable rain falls were recorded in parts of NSW, mainly across the North west, Western and Central areas. Some areas had over 60mm but most regions had half or less of that figure. Unfortunately most other drought affected zones remain dry, and will eventually impact on the ability of growers in those regions to retain the stock that they would ideally keep for wool production.

For the third week in a row, the mills in China have generally been somewhat restrained in their purchasing and remained pretty well coy in their intent. The larger indent operator remains active but the lack of any significant forward contract buying has pushed the market into a softer period for the time being. The more active players in the market were the large trading exporters who dominated the buying lists daily.

The markets this week may have been impacted to a slight degree by some gains in rostered quantities from the original forecasts. Last week 16% of additional quantity was added to national rosters, which mostly occurred in the Sydney centre. This seemed to provide angst to some operators, but this situation has happened pretty consistently for years now. What is significant though this year is that, even with that additional quantity, we are in fact offering 15.5% less bales next week than at the same sale last year. In addition, the following week, which is the final sale prior to a three week recess in sales, we also have 21.6% less bales to be offered than the “week 2” sales of July 2017.

Next week is the first week of the new selling season and is traditionally seen as a buying opportunity for exporters to complete outstanding contracts at more advantageous buy in levels. The larger volumes usually allow for more beneficial purchasing, but with comparatively lesser bales than normal to be auctioned, the chances are likely very slim this year for that to happen.

Wool forwards report - Southern Aurora Markets

Both the Auction market and the forwards steadied. Good opportunities still prevailed on the forwards with trades on the key 19.0 and 21.0 microns. 19.0 micron traded at solid levels out to October 2019. Growers being able to hedge between 2000 and 2050 for the new year. 21.0 microns remain in high demand and traded to Christmas. New season prices ranged from 2100 to 2255. Late winter and early spring were in demand with August at 2255 and September 2205. The October to December interest ranged from 2100 to 2135 with the market factoring in the current supply squeeze and the lightly impact of demand relief from spot levels

AUD Commentary - Southern Aurora Markets

The Australian Dollar was under pressure again this week dipping to an 18 month low of .7325 on Wednesday, well down from Monday’s open of .7445 as the trade war between the U.S and China and Europe simmered. Today Friday, the AUD inched higher at .7352, on a rebound overnight in key commodity prices and the release of positive growth data out of the U.S, which also helped Wall Street close higher. Sentiment was also stronger after China made more concessions yesterday to the U.S, with China saying it will open up global market access to various industries and will remove the foreign ownership cap in Chinese banks, and scrap limits on foreign ownership in brokers and insurance companies. In Australia, consumer confidence remained soft as said by ANZ’s head Australian Economics, David Plank. “It’s a little disappointing that the income tax cuts approved through Parliament last week failed to boost expectations about future finances”.

Technically the AUD remains contained within a large trading pattern, however within that a clear downtrend. The AUD bounced off chart support at .7325 this week, is oversold and likely to rally possibly back to key resistance at .7440. A break above that could see a rally to .7680, however as long as that resistance holds it's likely the Aussie will resume a deeper fall, possibly through the .7325 support and down to the next level of .7210.