AWEX wool indicator finishes 5.8% lower last week

Factors influencing Australian exchange rates have changed greatly since the last sale. Looking back to the onset of the Global Financial Crisis in 2008; the US and Euro Exchange Rates fell from 79.1 to 69.2 (12.5%) and from 56.6 to 50.6 (-10.6%), respectively following the collapse of Lehman Brothers. 

These falls occurred despite the fact that the problems were in the United States and Europe; not in Australia.  The reasons for the falls in the Australian exchange rates were that the United States and other major countries, such as Switzerland and Japan, are seen as “safe havens” in times of financial concern.  Currency flows to the “safe havens” at these times, accounting for the fall in Australian exchange rates at that time and in subsequent dips in global financial confidence.  Such falls in the US Exchange rate “softened” the impact of the fall in demand and in global prices for wool, and for other commodities, that usually accompany falls in global economic confidence.

Conversely, currency flows back to the “less safe” countries that have higher interest rates (such as Australia) when any lift occurs in global financial circumstance.

This situation has reversed in recent weeks as Australia appears to have developed a “safe haven” status; and has received an inflow of sovereign funds from other countries, resulting in an increase in interest rates.  Unfortunately for wool, this has coincided with weak market conditions.

Most Australian financial analysts are pondering whether this is a temporary situation, or it is likely to be maintained. Buyers for China were dominant this week, followed by good support from buyers for Europe, India and Korea.

Australian Wool Industries Secretariat Inc (AWIS)