Australian wool auctions produced positive price movements across the entire offering this week. All types and descriptions were well sought, despite the much stronger (+ 0.85%) Australian dollar (AUD) against the US Dollar (USD). Price results were all to the sellers favour amidst a more upbeat auction scene which is now seemingly lifting out of the gloom that has existed during the first quarter of this season. 

The Australian Wool Exchange (AWEX) Eastern Market Indicator (EMI) ended the week at 1545ac clean/kg which was a 28ac jump or 1.9% With the USD weakening against the AUD, the USD EMI was far more effected and bounced 2.7% or 28usc higher. That indicator closed at the 1057usc clean/kg level. 

The global economy continues to try and resolve itself, but most signals are now swinging to the more positive of outcomes, One thing that is out of politicians hands that will help stimulate the global wool chain is strong retail figures. Most trade participants are hopeful that the early autumn sales produce the expectations that consumers are renewing their spending, particularly for the discretionary luxury spend area of retail that wool sits in. 

Australian trading houses dominated the purchasing activity this week, but significantly the largest Chinese top makers upped their ante to participate far more strongly than they have been for the past month or so. Perhaps, and hopefully, this is indicative that some of the back log is clearing at the top to spinning stage where cash flows have been restricted due to delays in the up-take of wool top contracts. 

The auction rooms again operated in a controlled manner. The pattern of very large rises and falls has seemingly gone for now, as this was the third consecutive week of relatively sedate price movements. US prices rose and whilst overseas buying did back off somewhat, there was still ample business to see the market continue to climb against potential road blocks such as the stronger forex.  

This season has seen the general re-emergence of a very influen-tial price protection tool for wool growers - the use of the passed in mechanism. This has helped maintain the market rates at ac-ceptable levels but the growing stockpile must be continuously monitored. If not openly measured and identified, this stockpile may inevitably become problematical for the industry. 

At present though, retention by growers of some of their wool is enabling the supply chain further up to rid themselves of stocks without having the added financial burden of having to finance potentially speculative only new buying of greasy wool. This cur-rent situation will help cash flows to return to the first stage man-ufacturing sector.      

In the Merino fleece sector, general gains of 20 to 40ac were recorded. Above and beyond these gains were the better 19 mi-cron and finer types which received the largest rises, which equated to 70 to 85ac above last week. All other sectors gained 15 to 25ac. 

The strong gains that Fremantle extracted at the end of selling this week points to maybe a market trend buster developing. Next weeks offering volume of nearly 40,000 bales would normal-ly have buyers expecting a price retreat as the relatively larger bale numbers available would ease purchasing pressure and buy-ers would become more selective. Levels in the West though closed 10 to 20ac above the eastern markets which has usually been a far better indicator of current sentiment than the immedi-ate/short term supply waves.

Forwards Commentary—Southern Aurora (SA) Markets 

A relatively stable week by recent standards with the EMI rising 28 cents. Sellers remain mostly absent in the forward markets in re-sponse to the high volatility (30-40%) of the last two months. 

Buyers looking to hedge pre-Christmas are targeting to execute around cash.  

Bidding into the first quarter has begun to come through. 21.0 traded January at 1750 which is seven cents over cash but further follow up failed to eventuate due to lack of sellers and interest fell back 1700. 

Settling on an entry level to begin, or to continue, a hedging strategy is difficult. The 21.0 Micron Price Guide fell almost 600 cents from a season opening of 2037 to the low of 1444. The near 400 cent recov-ery to 1828 was followed by another 150-cent fall to 1685. We are currently lying at 1743 having recovered 58 cents.  Within these cy-cles there has been daily moments of more than 50 cents on 12 occa-sions. Such volatility would indicate that a minimum price contact 

(Put Option) would be a good strategy. Unfortunately, that same volatility (over 30%) will make premium costs prohibitive and option sellers hard to find.  

Some guidance might come from looking where the market sits at present. 19.0-micron MPG sits on the 76th percentile for the last 10 years but only 55th percentile for the last 5 years. The 21.0-micron MPG the 83rd percentile and 70th percentile respectively. This would indicate that historical 21.0 micron looks the better selling option to hedge at the current basis 

Early indications for the week ahead are for maintained interest on the bid side. Buyers will be looking to cover any sales in the prompt window. Lack of selling interest will most likely see execution levels above cash. 19.0 range 1780 to 1800 and 21.0 range 1750 to 1770.

AUD Commentary—Southern Aurora (SA) Markets

The Australian Dollar started the week on an up note, benefiting rom last weeks better than expected employment numbers, and rising to a high on Tuesday of .6866 before steadily drifting lower into today Friday, where it's trading at .6816 against a firming USD. 

On Thursday the British Pound fell sharply as Prime Minister Boris Johnson called for a national election for 12th December in an effort to break the deadlock over Brexit.  

Global equities edged higher on upbeat earnings, oil Prices lifted as did both Base and Precious Metals on the optimism of a U.S-China deal. China announced this week it would buy as much as $US20 billion of US farm goods in the first year if a phase-one trade deal is signed $US50 billion in second year if tariffs are removed. An IMF Report this week warned that Australia’s economy was slowing sug-gesting more rate pressure on the RBA.