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Wool Prices Affected by Australian Central Bank Policy Change

The Australian Central Bank moved to end its monetary easing policy, which kept interest rates and the Aussie dollar artificially low. As a result, both rebounded, ultimately resulting in a drop in wool prices in U.S. dollar terms.

After a three-week Christmas break, the wool markets resumed trading in early January. In the first two weeks of the month the Aussie dollar weakened and prices fell slightly, stimulating post-holiday demand, which remained strong for most of the month.

Prices jumped in the third week of the month, amid an unchanged U.S./Australian dollar exchange rate, but in the final week of January the Central Bank of Australia announced it would stop increasing the money supply. As a result, its currency sharply rebounded and wool prices dropped 1 percent on a dollar basis. It is doubtful that the Central Bank will resume the easy money policy anytime soon as the Australian economy is recovering and the Central Bank is concerned about inflation.

Wool prices ended this January at 16 percent below their level at the end of January last year.

Wool prices in euros have been rising, which could negatively impact the market in Italy.

During the month of January, wool prices slipped 3.5% on a U.S. dollar basis between the beginning and end of January.