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Australian Wool Prices Lift but Market Conditions Still Soft

Australian wool auctions resumed last week after an Easter holiday break, with price gains across all varieties, despite the general absence of the largest of the Chinese buyers, according to Australian Wool Innovation (AWI).

The AWEX Eastern Market Indicator was up 17 Australian cents to $1.96 per kilogram for clean or processed wool from the sale two weeks earlier. A total of 43,053 bales were offered, with sales of 93.6 percent.

The average price of Australian wool imported into the U.S. was $6.24 per pound for the week ended May 3, according to the U.S. Department of Agriculture (USDA). This compared to $6.22 per pound for the week ended April 16.

“This week’s purchasing activity was dominated by top makers and the locally based trader/exporters,” AWI said in its weekly report. “In the merino sector, though, the two largest Chinese indent operators were highly noticeable by their lack of purchasing intent. This lack of competition enabled other operators to buy-in at levels beneath their initial thoughts.”

AWI said in contrast to the pre-Easter sale, “which had widespread buyer support and positive sentiment, this week was a somewhat sporadic and hit and miss affair.” The report noted that tight trading conditions persist and cheaper exports drove sales.

“This sensitivity has arisen more-so from their thoughts and predictions of an Australian dollar lowering again against the U.S. dollar, drive by lower expectations of a U.S Federal Reserve rate cut this year,” AWI said.

The USDA noted that the Australian exchange rate was stronger by 0.0172 at 0.7021 percent of the U.S. dollar last week.

Richard Grace, chief currency strategist at the Commonwealth Bank, said further risks to the downside are building, opening the door “for further mild depreciation.”

On futures markets, AWI said, “Demand is still sluggish and medium term off-shore confidence is low. This is leading to the spring still being discounted and nearby months flat to cash. Grower selling is only sporadic with the ongoing drought and production concerns clouding forward strategy decision making.”