THE frailty of Australia’s wool market was illustrated last week with large price falls at auctions, heavily influenced by an upward spike in the Australian dollar’s exchange rate to the US currency.

The Australian Wool Exchange said the AUD closed the previous series at US59.63 US cents, but on the opening day of auctions last week it was trading at US63.43 cents.

“In contrast to the previous week, falls were expected and from the opening lot these falls were realised.

“Buyer activity was best described as cautious, with buyers being very selective in their purchases,” AWEX said.

“By the end of the day the individual Micron Price Guides for Merino fleece had dropped by between 16 and 48 cents.

“These losses combined with falls in the crossbred, skirting and oddment sectors, resulted in a 22-cent drop in the benchmark AWEX Eastern Market Indicator,” AWEX said.

“With the rise in the AUD, when viewed in USD terms, the news was much more favourable.

“The EMI rose by US34 cents, the largest daily rise in US cents since October 2021.”

AWEX said with minimal currency movement on the second day of selling, the market settled.

“Although the market recorded overall losses, the falls where nowhere near as large as the previous day.

“The Merino fleece MPGs movements ranged between unchanged and minus 17 cents and the other sectors recorded minimal falls.”

AWEX said the EMI fell by another 8 cents, closing the week 30 cents lower at 1232 cents/kg clean.

“The EMI also fell in USD, losing US6 cents for the day, closing the series 28 cents higher at US787 cents.”

AWEX said the Sydney sale at the Sydney Royal Easter Show showcased wool auctions to the larger community. There is no sale this week as the market heads into the one-week Easter recess.

Enormous foreign exchange pressures – AWI

Australian Wool innovation trade consultant Scott Carmody said the auctions operated under enormous foreign exchange pressures and growing caution last week.

“The week-to-week movement of the AUD against both the US dollar (+6.3pc) and the Chinese Yuan (+6pc) was extreme and exporters were displaying increasingly circumspect buying strategies to adjust to the rapidly changing trading environment,” he said.

“Prices were subsequently affected in AUD, with the leading all eastern wool indicator 2.4pc lower for the week.

“The western indicator was more adversely by peeling back 3.6pc.”

Ms Carmody said escalating tariffs between the USA and China had brought about concerns of the potential of a global economic slowdown, but by the USA exempting some key technology products out of China from the new tariffs, the value of the Australian dollar (AUD) was boosted heavily.

“Similar to last week when the local market values did not achieve the full extent of the potential gains, this (last) week’s AUD auction prices held on much better than the theoretical falls that may have been possible in a straight forex conversion,” he said.

“The price realization results of the past two turbulent weeks of trade have been directionally easy to pick for participants, but the magnitude on both the plus and minus side has been rather awkward but remarkably calm.

“Whilst fresh demand has reduced enquiry and conversion to new business, there has been enough prompt manufacturing buying and forward contracts on the traders’ books needing completion to keep some semblance of normality in play,” he said.

Mr Carmody said Merino types were generally 35-50 cents cheaper for the week, with the majority of those falls occurring on the first day from the first lot.

“Once that pull back number was set, the remainder of the day traded largely at the same rates.

“The final day saw a much better auction environment, with a large portion of the better wools trading firm and only the lower spec wools dropping 5 to 15 cents for the day.”

Mr Carmody said the week off for auction sales this week is widely believed to be opportune to allow clearer macro economic signals to mitigate risk for all.

Sources – AWEX, AWI.