Australian wool auction sales adjusted heavily downwards this week in complete contrast to the impressive gains of last week. Following two weeks of consecutive rises and seeing the AWEX EMI (eastern market indicator) go into record territory, the market finally hit a price point where the price hurt the prompt demand, and the market reacted accordingly. By the close of selling, the EMI settled at 1572ac clean/kg, eliminating 42ac from the record level set last week. The EMI in USD fell similarly by 40usc clean/kg to a close of 1241 usc clean/kg.

Significant passed in rates was the surprising aspect of the week, with over 18% of the Melbourne Merino fleece and 12% of the Sydney merino fleece failing to reach growers expectations. Given the prices being offered were just off a record high level, this was a paradoxical figure to most exporter buyers, but perhaps it was more to do with the speed of the market adjustment rather the actual price level that caused such high passed in rates.

The large orders emanating out of China last week, seemingly dried up almost immediately at the start of the week. Buyers approached the sales with extreme caution, and as soon as weakness became the trend, most buyers retreated steadily to levels that were more reflective of where the buying demand has appeared the previous week. Those locally based exporters that had written forward orders also withdrew, and bought sparingly, waiting to achieve price levels that were more representative of where they had sold.

Merino qualities broader than 19 micron sold 60ac lower whilst the average and good top making types finer than 18.5 micron were sold to levels 30 to 40ac cheaper. Significantly though, very strong buying from Italy ensured a different market direction on the spinners and best top making sale lots. Very few bales were allowed to go to their competition and this led to a slight escalation in prices, bucking the trend of all other wool sectors.

Merino skirtings sold similarly to their fleece counterparts, with only the better pieces and broken types with less than 3% vm (vegetable matter) holding onto their established prices.

The strong rally that gratefully appeared on the crossbred segment of the wool auction was seemingly short lived, as all of these crossbred qualities (26 to 30 micron) sold cheaper to varying margins of between 5 and 25ac clean/kg.

Carding types continue to soften as the largest buyers of these types are giving off weak signals of strength. Most traders were quoting cardings at levels which were 10 to 20ac cheaper by the close of selling for the week.

Auction sales next week in Australia have on offer around 45,000 bales to be put in front of buyers. With an additional quantity overflowing into the upcoming sale weeks due to the high passed in rates, buyers will no doubt be more circumspect in their purchasing strategy and all will be looking for price levels across all types that will enable further interest and business from overseas to occur.

AUD Commentary - SAW

After hitting a high on Monday 0f .7948, the Aussie Dollar slowly sank through the week in a quiet market ahead Friday’s global Central Bank meeting in Jackson Hole, to be trading this Thursday evening at .7882. The Aussie weakened mainly as a result of a firming USD, but also on the back of lower Energy and Iron Ore prices. Comments from attendees at the meeting saw the Euro jump to a two-year high against a basket of currencies after the European Central Bank shrugged off concerns about the strong exchange rate. Mario Draghi, the ECB’s president, said the euro-zone economy is firing on all cylinders as super-easy monetary policy continues to flush the system with liquidity. The headline speeches from US Fed chair Janet Yellen and ECB president Mario Draghi won’t arrive until late Friday evening. Meanwhile the USD also had a bumpy week, weakening over the last 24 hours on concerns the much hyped tax reforms may not eventuate. The ICE U.S. Dollar Index DXY, -0.32% a measure of the U.S. unit against six other currencies.

Technically the AUD/USD remains neutral at this point. Correction from 0.8065 might extend the move downside, but we expect the downside should be contained at 0.7785

Southern Aurora Wool forwards report

The extent of the fall in the spot market took most participants by surprise. Trading on the forwards was steady with exporters still keen to get some cover into End October. The opportunity for volume covering into the New Year disappeared in the short term while the market looks for consolidation. We expect interest to remain throughout September and October but buyers appear more cautious as we move into the peak production times. Forward prices still remain in the high percentile bands for key micron groups

Hedging opportunities will present themselves in the coming weeks ahead of the higher supply period in October and November. Sellers will need to set strategies to capture the volatility that lies ahead.