Exchange Rate Considerations Affect Wool Market
May 24, 2013
Further weakness in the Australian dollar against its U.S. counterpart and covering of short sales by exporters from an increasingly limited current clip selection were the key factors affecting the Australian wool market this week. While last week, fresh export sales stimulated by a more favorable exchange rate for the buyer was a supportive influence, off-take by Chinese mills and processors was far less robust this week with buyers tending to shelve purchasing decisions having seen the Australian dollar slide further. The bulk of demand at auction this week was attributed to traders still needing to cover short sales, perhaps concluded several weeks earlier.
Trade sources indicated that some fresh export demand was evident towards the beginning of the week, but it soon faded. Offers of 21 micron were typically pitched today at close to US$11.20 per kilo, greasy, CIF (90 days Letter of Credit), compared with US$11.40 a week earlier. Buyers were typically targeting a purchase price close to US$11.00.
The Australian Wool Exchange’s Eastern Market Indicator increased this week by 1.6 percent, to 1,038 Australian cents per kilo, clean. In U.S. dollar terms, however, the indicator fell by 0.9 percent, to 1,001 U.S. cents per kilo.
Looking ahead, few traders anticipate any major price swings before the end of the season. Stabilization in the exchange rate could influence renewed buying by Chinese processors and mills, but latent demand is not expected to be of sufficient proportions to underpin significant further rises in auction values. Moreover, the trade is likely to have covered the bulk of any outstanding requirements against short sales concluded during the declining market witnessed in March and April.
Reprinted in part from WTiN Wool Market Report