The Australian wool market underwent a radical change in February after the Central Bank of Australia decided to end its monetary easing policy, causing the Australian dollar to rise sharply and wool prices, in dollar terms, to drop in relative terms.
In the final week of January the Central Bank of Australia announced it would stop increasing the money supply. This environment is expected to remain for the foreseeable future as the Australian economy is recovering and the Central Bank is concerned about inflation.
Despite a firming of Australian wool prices in the final week of the month, the average dropped 3% in February in dollar terms, and remain 17 percent below their year-ago levels.
Wool supply has been in somewhat shorter supply due to draught conditions in key regions of Australia, which have been taking a toll on wool production. In addition, soft demand from China has resulted in lower quantities sold.
Over the next few weeks, Italian buyers are expected to enter the market for high end fibers, which should help prices firm.