Falling dollar drives woolbuyer reluctance

The severity of the falling Australian dollar has left many woolbuyers reluctant to contract significant quantities, according to Australian Wool International.

"Normally a falling Australian dollar would act to strengthen local wool prices; but over the past few months this has not happened consistently," it says in its market intelligence report for July.

"The severity of the fall and subsequent instability has left many buyers reluctant to contract significant quantities of wool on a forward basis, given the risk that FX movements could devalue their purchases," AWI says.

"The recent USD:AUD exchange rate fluctuations have been substantial – variation from July 1, 2012, to April 12, 2013, were minimal at 1.1 per cent, whereas fluctuations from April 12 have been four-times greater."

AWI reports that there was a general consensus among the majority of forecasters that the AUD:USD FX was unlikely to break parity again given current market conditions and would continue to fall in 2014, however there were a diversity of views as to the direction it would take until the end of 2013.

"The general view among forecasters is that the FX rate will decline until the end-2013, but some believe it will rise slightly," the reports says.

"For Australian woolgrowers, devaluation of our currency against the USD will have a positive long-term impact over the coming decade – however woolgrowers will struggle to see the benefits until the instability in our exchange rate reduces."