Australian wool auctions produced wildly varying movements in their published pricing, but this was totally due to the lack of a Sydney sale last Thursday. The disparity with the week to week quotes saw the trade initially concentrate on trying to align those differences but by weeks end, the returning confidence saw all levels flatten out then slowly increase. The weaker AUD v USD rates (-1.3%) helped maintain the renewed and improving interest from overseas.

The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) gained a further 7ac this week to close at 1542ac clean/kg helping to stabilize the market after the record 170ac gains of last week. In US Dollar (USD) terms the USD EMI fell away by 9usc or 0.9% on the back of a weakening AUD and closed the week at 1047usc clean/kg.

The sale results were indicative of a strong, albeit flat market. Sentiment appears to shifting to the positive. Many of our Australian exporters are currently in China for the Nanjing Wool Market conference and the first hand reports are flowing of a surprisingly better business atmosphere than most were expecting. Manufacturers appear to be showing (and exercising) faith at around the current market levels. Much of the Chinese interest though is for the fine medium Merino (18 to 22 micron) types with only smatterings of bookings reported for the superfine (finer than 18.5micron) Merino types.

Pre-sale expectations that Melbourne has pushed “too high” last Thursday were ultimately proved correct as that centres pricing for the “bread and butter” Merino types of 18.5 micron and broader dropped off by 40 to 50ac at the commencement of the sales. All sale room operators reported, that despite the price decaying back towards the Fremantle pricing set at the end of last week, competition from all major players was strong. At these price levels, exporters are showing more inclination to hopefully get back to the normal operations of less risk adverse buy and sell strategy.

Australian buyers lists were well and truly dominated by the locally based trader exporters this week. With the “lower” levels of pricing currently in effect, overseas users are currently more inclined to lock into forward contracts rather than use their indent channels. Without trying to read too much into it, perhaps this is indicative of improved inquiry emanating from further up the supply chain. Hopefully this is the case as wool tops are needed to moved on in order for cash to be returned down to the raw purchasing supply side.

Wool selling growers are continuing to place pressure on the volumes available at auction. Sellers choosing to withdraw or pass in their wool is continuing but diminishing as this weeks action saw 8.6% of the initial rostered quantity withdrawn from sale prior to sales commencing. Of that volume left, 10.4% failed to meet the price expectations of the owners and were subsequently passed-in.

The annual Nanjing Wool Market Conference kicks into full gear this afternoon and through the weekend at Qufu, Shandong China. Thankfully a more positive sentiment will accompany delegates than the price negativity that enveloped our industry just a few weeks ago. This weeks relatively market is perhaps the best fillip for the industry at large following the initial massive losses of three weeks ago to the semi recovery seen since. All sections of the trade, from grower to garment maker are hopeful that the market can act to a stable price structure for a significant time, but history tells us that this is the most unlikely of results to be expected.

29,000 bales is being offered next week.

Wool forwards report - SA (Southern Aurora) Markets

A relative stable week in the spot auction delivered a better environment for the forward market that saw activity through to June 2020. Volumes tended to be light as both buyers and sellers were wary of jumping the gun in a period of unprecedented volatility. Buyers have been keen to cover nearby risk. This has led to some solid hedge levels in October with the 19 micron index trading at 1755. Although 30 cents under cash it is 200 over the low of two weeks ago of 1550. These levels have carried along the curve with November and December trading at 1720 through to March 2020 at 1700. The 21.0 contract traded out to June 2020 at 1600.

The escapades of the last two months have had a detrimental effect on all value chain partners. Indecision and uncertainty plaguing the market. One positive outcome has been the recognition that this level of risk and volatility is unsustainable and needs to be addressed. This starts at the farm gate by providing the information on the available tools, their utilisation and function.

Hopefully the Nanjing Conference this week will provide a strong platform for the market into the summer.

Thanks to Tianyu Wool for their 20th anniversary of supporting the Australian Wool Grower - Xie Xie Wen Xiansheng!

AUD Commentary - SA (Southern Aurora) Markets

The Australian Dollar softened steadily all week from its Monday high of .6883 to the low Thursday night of .6780 before edging higher Friday (today) to .6794 with data and Interest Rate projections the key drivers.

Earlier in the week Jerome Powell the U.S Fed Chairman as expected announced the Fed was cutting the benchmark Fed Funds Rate to 1.75% saying cut was designed “to provide insurance against ongoing risks". That follows the July cut — and is only the second downward move since 2008. In Australia the major Banks expect the RBA to cut the benchmark rate to a fresh record low of 0.75% on the 1st of October, and Westpac expects that to drop to 0.50% next year.

In better news this week the Australian Government confirmed it's likely to achieve a Budget Surplus this Financial Year and the 2018-19 budget ended with a much smaller $690 million deficit (was expected $4.2 Billion) after taking in $13.8 billion more than it expected.

Technically the Aussie Dollar remains trapped within a broad downtrend, however the last two months has seen the Aussie trading sideways, contained within a band, with support at ,6748, then .6675 and resistance at .6894 and .7088. We favour a re-test of the lows in the coming weeks.