Wool defies impact of surging AUD

Wool trades solid as dollar climbs


Sheep
Annette Hudson and Col Thomas crutching 2.5 year old Merino ewes with White Suffolk lambs at foot at Nullawarra, Cobar, NSW. Photo: Rachael Webb

Annette Hudson and Col Thomas crutching 2.5 year old Merino ewes with White Suffolk lambs at foot at Nullawarra, Cobar, NSW. Photo: Rachael Webb

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Record forward trades have been secured during the current winter recess, despite a surging Australian dollar.

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WOOL prices appear to have defied any negative impact of the sharp rising Australian dollar with record forward trades being secured during the current winter recess.  

With supply low and demand high from export buyers, forward trades reached 1755 cents a kilogram clean for 19-micron class in September, and 1505-1525c/kg for 21m for August.

The Australian dollar rose sharply against the US this week, pushing the AUD over 79USc – the highest level since May 2015.

“This rapid rise and higher level against the US dollar will create a headwind for Australian wool prices when auctions resume in the week beginning 7 August,” National Council of Wool Selling Brokers of Australia executive director Chris Wilcox said.

During a time when the AUD surged two per cent in value in the past ten days, the winter recess is defying the trend of cautious international buying by sustaining the historic high prices.

The Australian Wool Exchange Eastern Market Indicator (EMI) closed the 2016-2017 season at 1522c/kg clean, or US1173c/kg.

Southern Aurora Wool partner Michael Avery said pent-up demand following the winter recess would offset the strengthening dollar which was usually a deterrent to export buyers.

“We will see a pull-back,” Mr Avery said.

Market analysts fears the surging Australian dollar could create some headwind for wool prices when auctions resume in August. Source: AWEX

Market analysts fears the surging Australian dollar could create some headwind for wool prices when auctions resume in August. Source: AWEX

“We will have some weakening when the (market opens) but not the full extent of the dollar’s movements which will be slightly muted by the pent-up demand over the break.

“We have had three weeks without sales so that increase in demand will hold things where they are.”  

Wool prices have risen to highs not seen in Australia in decades due to growing export demand and limited supply, according to Rural Bank’s 2017 Australian Wool Annual Review.

The report found stronger demand from processors and reduced supply influenced the 10pc spike in the EMI in the first half of 2017, while the 17 micron price guide rose 45pc over the past 12 months.

“It has always been an interesting conundrum,” Mr Avery said.

“The dollar has an effect on prices because the majority of exports are made in American dollars but the big picture answer is if the market has momentum – momentum is what carries the day.

“While forwards have come-off a little with the pressure of the dollar… the absolute impact will be seen when sales resume.”

However moving into spring – a period of higher supply – Mr Avery said if the dollar did not relent, the direction of the market would be negative.

“The market has been looking for a breather - after months at decade high levels for the market to readjust slightly is not such a big thing,” he said.

“The dollar can be a two edge sword – it increases the value of stock down the line in US terms so people holding can shift more volume - it is not always bad news.”​ 

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