A$ Depreciation Affects International Wool Market

A sharp depreciation of the Australian (A) dollar against its U.S. counterpart and extreme volatility in global financial markets provided the backdrop for a week of uneasy wool trading. In the first auction after the July recess, the Australian Wool Exchange's Eastern Market Indicator (EMI) fell sharply, rebounded modestly Wednesday, before again declining Thursday. The EMI has relinquished A$59 cents/kg or over 4 percent of its value since July 13. At A$1,302 cents/kg clean, it stands at its lowest level since the beginning of March. The fall in the EMI expressed in U.S. dollars has been still more profound, totaling US$109 cents/kg, or 7.5 percent.

The fall was not unexpected given the European and U.S. debt crises, but even prior to last week's financial turmoil, exporters were tipping that this week's opening sales would be 'flat' after the strength of sales in June, which saw AWEX's Eastern Market Indicator peak at 1436c/kg clean.

Merino fleece prices have fallen most significantly, leading the market down, with crossbreds and oddments values faring much better, and in some cases, recording net gains. The divergence may be attributable to the absence of buyers from Europe (due to holidays), from whom the strongest competition for finer micron fleeces is traditionally forthcoming, in conjunction with a tighter supply in the lower qualities.

Of the 58,531 bales offered this week, a total of 47,565 were sold, representing a pass in rate of 19 percent. A smaller offering is forecast for next week of 47,936 bales.

Reprinted in part from Wool Record Weekly